* Brent near 2-1/2 year high on Mideast, N. Africa unrest
* Attention also focused on elections in Nigeria
* Chinese interest rates up 0.25 pct, fourth hike since Oct
* Coming Up: U.S. API petroleum stocks at 2030 GMT
(Updates prices, add quote, Chinese interest rates)
By Jessica Donati
LONDON, April 5 (Reuters) - Oil prices fell on Tuesday but
held near 2-1/2 year highs, with Brent remaining close to $121 a
barrel on unrest in oil exporting countries in the Middle East
and Africa.
A Western air strike destroyed two of Muammar Gaddafi's
military vehicles in the east Libyan oil town of Brega on
Tuesday allowing rebels to edge forward, but diplomatic efforts
to end the war remained stalled. []
The stalemate fuelled fears of a prolonged loss of oil
exports from Libya despite reports that a first cargo of crude
oil is due to be loaded by rebels on Tuesday.
Brent crude for May <LCOc1> fell 70 cents to $120.36 a
barrel at 1130 GMT, after closing at $121.06 a barrel on Monday,
the highest settlement since Aug. 1, 2008.
U.S. crude <CLc1> fell 69 cents to $107.82 a barrel after
settling at $107.78 on Monday, the highest since Sept. 22, 2008.
"It's looking overbought and we might see a bit of a
correction now, but now that Brent has broken above $120 it's
hard to put a top on it," said Rob Montefusco, an oil trader at
Sucden Financial.
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FACTBOX on Libya's oil production: []
More on Middle East unrest: []
Libya Graphics http://link.reuters.com/neg68r
Interactive graphic http://link.reuters.com/puk87r
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The fourth Chinese interest rate hike since October briefly
triggered a decline of around $1 a barrel in oil prices, but
markets pared the bulk of losses on reports of further clashes
in West Africa on Tuesday.
"The market doesn't seem that bothered about Chinese
interests rates any more, which seems totally crazy to me," said
David Morrison, a strategist at GFT.
TIGHT SUPPLY?
The perception of tight fundamentals has helped trigger
price gains on relatively small output interruptions, which have
been compounded by the erosion of spare capacity from top
exporter Saudi Arabia, analysts said.
The kingdom has raised supply and introduced lighter grades
of oil to help fill in for missing Libyan output, but traders
question how much more room for output increases remains.
Worries about oil supply also focused on Nigeria after
elections there were postponed by a week due to logistical
problems, sparking fury among voters who were promised a break
with a history of flawed and violent polls. []
"We have already lost good grades in Libya, and now the
elections in Nigeria are providing further potential upside,"
continued Montefusco.
"OPEC may be called on to increase production, but the
question is, how much spare capacity have they really got?"
Nigeria has a history of contentious elections and militants
there have previously hit oil supplies, a sweet crude that has
jumped to a premium as a result of the Libyan outages.
However, production was restarting in Gabon, which produces
a similar grade of oil, after energy worker strikes completely
cut off the country's near 240,000 bpd of output. Total and
Shell, key producers in Gabon, both said they were working to
restore normal production as soon as possible. []
"Anything that affects Brent or Africa is going to be
important, especially under the current situation in Libya,"
said Tony Nunan, a risk manager with Tokyo-based Mitsubishi
Corp.
Delayed loading of several cargoes of Forties crude -- which
typically sets the level of the dated Brent benchmark -- will
add to supply pressure. []
The discount of U.S. crude futures to Brent <CL-LCO1=R>
widened to $12.64 at 0938 GMT, gaining close to $2 a barrel
since the start of trade this week, but remained distant from a
record $17.12 a barrel spread at the start of March.
Former Saudi oil minister Sheikh Zaki Yamani told Reuters
the U.S. would continue to be dependent on exports from Saudi
Arabia despite plans to cut oil imports by a third over the next
decade announced by U.S. President Barack Obama last week.
He said oil prices could leap to $200 to $300 a barrel if
Saudi Arabia is hit by serious political unrest. []
Weekly industry and government petroleum inventory reports
are forecast to show a 1.4 million build in U.S. crude
inventories, a 1.9 million barrel decline in gasoline stockpiles
and a 200,000 barrel drop in distillates, according to a Reuters
poll of analysts. []
(Additional reporting by Seng Li Peng and Simon Webb in
Singapore; editing by James Jukwey)
