UPDATE 5-Oil up, nears $104, eyes MidEast, China

                                
 * China inflation lower than expected
                                
 * U.S. retail sales up 0.3 pct, lower than forecast
                                
 * Coming Up: API weekly inventory data

                                
 (Updates prices, adds quotes, US retail sales)
                                
 By Claire Milhench
                                
 LONDON, Feb 15 (Reuters) - Brent crude oil rose to flirt
with $104 a barrel on Tuesday and U.S. crude was up over $1,
supported by lower than expected Chinese inflation figures and
unrest in Bahrain and Iran.
                                
 Last week's ousting of Egyptian President Hosni Mubarak and
the toppling of his Tunisian counterpart Zine al-Abidine Ben Ali
a month earlier have raised tensions among investors that
spreading unrest could disrupt oil supplies.
                                
 "We are seeing contagion from Tunisia and Egypt to other
countries that are more important for the oil markets," said
Christophe Barret, oil analyst at Credit Agricole Corporate and
Investment Bank.
                                
 Brent crude for April delivery <LCOc1> was up 28 cents to
$103.36 barrel by 1350 GMT, after earlier pushing to $104.04 in
the session, but still off a 29-month peak of $104.30 reached on
Monday.
                                
 U.S. crude for March delivery <CLc1> staged a rally as New
York woke up, climbing $1.07 to $85.88, after falling to
2-1/2-month lows in the previous session. A London-based broker
said the rally was not that significant, however.
                                
 "West Texas Intermediate is so undervalued relative to Brent
and other grades imported to the U.S. that it seems to have
rallied more strongly because it is so out of line," said Tony
Machacek, a futures broker at Bache Commodities. 
                                
 He added that continuing political tensions in North Africa
and the Middle East were helping to support the market.
                                
 One person was killed when police in Bahrain clashed with
mourners in a funeral procession of a Shi'ite protester shot
dead in clashes on an anti-government "Day of Rage"
[ID:nLDE71E066] [ID:nLDE71E0NE].
                                
 Analysts say large-scale unrest in Bahrain could embolden
fellow marginalised Shi'ites in nearby Saudi Arabia, the world's
biggest oil exporter.
                                
 Iranian lawmakers called for the death penalty for
opposition leaders [ID:nHAF530028] after thousands of opposition
activists rallied on Monday in support of popular uprisings in
Egypt and Tunisia [ID:nLDE71D13Z]. 
                                
 Barret also pointed to demonstrations in Algeria at the
weekend. He said that Algeria produces about 1.3 million barrels
a day and Iran about 3.7 million barrels a day, making it the
second largest OPEC producer. 
                                
 "With Saudi Arabia's spare capacity at roughly 3.5 million
barrels a day it could have a severe impact on the oil market if
you have any interruption in oil exports from Iran."
                                
 Also lending support was China's consumer price inflation
coming in lower than expected for January at 4.9 percent. A
Reuters poll had forecast 5.3 percent [ID:nTOE71E01Y]. China is
the world's second largest consumer of oil after the United
States.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
                                
 For a graphic on Chinese inflation click:
http://link.reuters.com/zan97r
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
                                
 Although some economists expressed caution and suggested
Beijing would stick to its course of gradual monetary
tightening, the oil market shrugged off these concerns.
                                
 "Inflation was lower than initially feared so there is less
need for strong tightening and the previous tightening hasn't
had any negative impact on commodity demand from China, as
suggested yesterday by the strong impoort data," said Carsten
Fritsch, a commodity analyst at Commerzbank. "I think the fears
are much exaggerated."
                                
 China's crude oil imports for January have risen 27 percent
from a year ago as refiners raise production and beef up diesel
inventories to fight a drought [ID:nTOE64607F].
                                
 U.S. retail sales for January came in lower than expected at
0.3 percent, instead of the 0.6 percent forecast, likely
reflecting poor weather conditions that kept shoppers indoors
[ID:nN15158173]. 
                                
 Gasoline station sales were up 1.4 percent due to rising
prices.
                                
 The market is now looking to U.S. weekly crude inventories
from the American Petroleum Institute (API) due at 2130 GMT.
                                
 A Reuters poll forecast a rise in crude oil stockpiles for
the fifth week in a row, to 2.6 million barrels, due to a
rebound in imports [ID:nN1484604].
                                
 The dollar <.DXY> fell 0.19 percent against a basket of
major currencies to 78.464. A weaker U.S. currency is generally
supportive for commodities priced in dollars as it makes it
cheaper for buyers using other currencies.
 (Reporting by Claire Milhench; additional reporting by Jennifer
Tan in Singapore; editing by Keiron Henderson)