* Brent pares gains after China hikes bank reserves ratio
* Ongoing Middle East, North Africa tensions support price
(Updates throughout, fresh quotes, prices)
By Zaida Espana
LONDON, Feb 18 (Reuters) - Oil prices moved lower on Friday
after China increased lenders' reserve rates, although worries
about tensions in the Middle East and North Africa lent support.
Brent crude futures <LCOc1> were 16 cents up at $102.75 a
barrel by 1057 GMT, down from earlier gains to $103.5 a barrel.
U.S. March light crude contract <CLc1> shed 54 cents to $85.82.
China raised lenders' required reserves by 50 basis points
on Friday, the second such increase this year as it steps up a
campaign to rein in inflation, spurring concern that this could
signal a curb in its oil demand growth. []
"They have been trying to curb liquidity for some time so
little surprise and not as bad as a benchmark rate rise, but
still slightly weighing on sentiment," Andrey Kryuchenkov from
VTB Capital said.
"We are seeing a correction on WTI (U.S crude) as China
takes further steps to tighten its monetary policy, this time
through bank reserve requirements, which in turn could suggest a
moderation in the country's economic growth," BNP Paribas' head
of commodity markets strategy Harry Tchilinguirian said.
"Brent is holding roughly even for now as it embeds a risk
premium related to tensions in the Middle East."
Despite China's bearish move, analysts expect Brent futures
prices will be supported going into the weekend.
"When social unrest and political upheaval erupts in the
biggest oil producing region of the globe it is not a wise
strategy to short energy," David Hufton from brokerage PVM wrote
in a note.
Parts of the Middle East and Arab North Africa could see
renewed public anger towards their governments on Friday, with
the focus on Bahrain and Libya as protesters bury people killed
in recent clashes. []
Egypt's Suez canal remained in focus after Iran appeared
intent on Thursday on sending two warships through, in a move
Israel called a "provocation." []
"We suspect that the markets will be fairly well bid heading
into the weekend, as developments in the Middle East should
prevent aggressive short positions from building up," MF Global
analyst Edward Meier said in a note.
"However, it will likely be Brent that will likely see the
most price sensitivity in the event of a serious flare-up, as
WTI still seems to be on the defensive, pressured by an
unfriendly arb and excessive Cushing inventories."
Thousands of protesters took to the streets of Libya's
eastern city of Benghazi overnight after the security forces
killed more than 20 protesters during the previous "Day of Rage"
demonstrations. []
In Bahrain, several thousand Shi'ites attended the burial of
three of those killed in a crackdown designed to quell protests.
[]
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BENCHMARKS
The debate concerning the crude benchmarks continued as the
spread between Brent and U.S. light crude <CL-LCO1=R> remained
at around $14.2 by 1043 GMT.
Nomura's Michael Lo argued the change in global oil demand
growth was playing a role in the weakness of the U.S. light
crude, also known as West Texas Intermediate (WTI).
"Future oil demand growth will likely come from the Asia
Pacific region, and new refineries are being built in this
region to meet new demand. WTI plays almost no part in this
region and the demand and supply dynamics are very different,"
Lo wrote in a note. "Brent is increasingly being recognised as a
crude benchmark in Asia."
The U.S. light crude contract could benefit from
short-covering ahead of expiry of the March future on Tuesday.
Brent oil prices are forecast to drop later this year as
analysts expect the risk premium for unrest in the Middle East
to ebb, a Reuters poll showed. []
(Additional reporting by Jennifer Tan in Singapore and Ikuko
Kurahone in London; editing by James Jukwey)
