* Investors eye growing instability in MEast
* U.S. Oil could extend gains to $105/bbl
(Updates with prices, details)
By Luke Pachymuthu
SINGAPORE, March 3 (Reuters) - Oil rose on Thursday as
investors eyed growing instability in key Middle East oil
producing countries, which could signal another threat to global
supplies, after Libya's Muammar Gadaffi ordered airstrikes near
Libyan oil facilities.
U.S. crude rose 31 cents to $102.54 at 0425 GMT,
after hitting a high of $102.94. It had settled at $102.23 a
barrel in the previous session, settling above $100 for the
first time since September 2008.
Prices got a further lift following a drawdown in U.S. oil
stocks, data from the U.S. Energy Information Administration
showed.
Prices for U.S. oil could extend its gain to $105 per
barrel, says Reuters market analyst Wang Tao.
Brent crude rose 46 cents to $116.81 per barrel.
Brent had settled 93 cents higher at $116.35 a barrel, the
highest settlement since Aug. 21, 2008, and traded as high as
$117.81 during the previous session.
The bloody violence in Libya as Muammar Gadaffi battle for
survival had spurred Brent to a 2-1/2 year high near $120 a
barrel on Feb. 24.
"The stability of the region has gone through a major shock
and the ripples are going to be felt for a while," said Carl
Larry, president of Oil Outlooks and Opinions based in Houston.
"Gadaffi might leave, the rebels could take over, but we
still don't know who will then be in charge of those oil
supplies ... and where next are we going to see unrest
erupting."
On Wednesday bombing raids were carried out just outside a
Libyan oil terminal, adding fuel to fears the unrest could spill
over into other large oil producers in the region.
Libya, a member of the producer cartel OPEC, has lost about
700,000-750,000 barrels per day (bpd) of its normal output of
1.6 million bpd as most of the industry's foreign workers had
taken flight after the crisis began according to Shokri Ghanem,
the head of the North African producer's state oil company.
.
A drawn-out battle between rebels and pro-Gaddafi supporters
in Libya could push crude oil prices above $130 a barrel.
"The market still sees the risk of contagion to neighbouring
countries like Algeria which produced 1.2 million barrels per
day (bpd) in January," a BNP Paribas research note said.
"Should Algeria be affected, OPEC's spare capacity stands to
be significantly curtailed if it were to meet the additional
shortfall in supply."
The EIA said on Tuesday that prolonged disruption in Libyan
oil exports could force the United States to compete more for
supplies as Europe buys Algerian crude normally sent to the U.S.
market.
Governments in Yemen, Oman, Iran and Iraq have clashed with
protesters seeking reforms as popular unrest has spread in the
region holding more than 60 percent of the world's oil reserve.
FUNDAMENTALS
U.S. crude inventories fell last week as imports dropped,
but stocks at the key delivery hub at Cushing, Oklahoma hit a
record high, the EIA said in a report on Wednesday.
Domestic crude stocks fell 364,000 barrels to 346.38 million
barrels in the week to Feb. 25, government data showed, compared
with expectations for a 700,000-barrel build in a Reuters poll
of analysts.
Inventories at the key Cushing terminal rose by 1.13 million
barrels to a record 38.57 million barrels. Cushing is the
delivery point for the New York Mercantile Exchange's benchmark
West Texas Intermediate crude futures.
"Fundamentally we have surplus oil in the United States and
most of the OECD countries," said Jim Ritterbusch, president at
Ritterbusch & Associates in Galena, Illinois.
"It's very obvious that the market is being driven by a very
different dynamic...geo-politics of the Middle East, and that is
going to be in play for a long time."
(Editing by Ed Lane)
