UPDATE 9-Oil hits 2-1/2-year peak; gains seen slowing

                                

                                
 * Libyan rebels ship 1st crude cargo, oil fields damaged
                                
 * OPEC members say can do little to control prices
                                
 * U.S. stockpiles data mostly in line, crude up
 (Recasts, adds settlement prices)
                                
 By David Sheppard
                                
 NEW YORK, April 6 (Reuters) - Brent crude oil prices rose
to a 2-1/2-year high above $123 a barrel on Wednesday before
erasing the majority of gains in volatile trade as market
players fretted the recent rally was overdone.
                                
 Brent has risen for five straight days to climb more than
$7 a barrel, but the gain of just 8 cents on Wednesday was the
smallest yet, with prices finishing more than $1 below the high
of $123.37 a barrel.
                                
 Mounting evidence that fighting in Libya, an OPEC member,
could continue to disrupt oil supplies as well as simmering
tensions in the wider Middle East region has pushed up prices.
Uncertainty has sent many oil traders to the sidelines,
however, with volumes well below normal.
                                
 The International Energy Agency (IEA) warned that current
prices could slow the global economy. But members of the
Organization of the Petroleum Exporting Countries insisted the
market remained well supplied, saying there was little they
could do to stop speculators from betting on "worst-case
scenarios".
                                
 Weekly inventory data from the U.S. Energy Information
Administration was largely in line with expectations, showing
crude stocks rose last week, while gasoline stocks fell
slightly less than forecast. For details, see [ID:nN06134822]
                                
 U.S. gasoline demand, which accounts for roughly one in ten
barrels of oil consumed globally, has started to falter as
prices have risen. The EIA said average gasoline demand over
the past four weeks was down 1.2 percent from year-ago levels.
                                
 Brent crude <LCOc1>  settled up 8 cents at $122.30 a
barrel, having fallen more than $1 from its earlier 2-1/2-year
high of $123.37 a barrel.
                                
 U.S. crude oil futures <CLc1> rose 49 cents to settle at
$108.83 a barrel, after touching $109.15, the highest since
September 2008.
                                
 Trading volumes for U.S. crude futures were about 35
percent below the average over the last 250 days, but they
moved back above the Brent total after slipping below it on
Tuesday, a rare occurrence for the two contracts.
                                
 "Oil prices are pulling back from earlier highs and
consolidating as people are taking some profits," said Tom
Knight, a broker at Truman Arnold in Texarkana, Texas.
                                
 "This does not disturb the market's upward momentum. People
are waiting for the expected ECB (European Central Bank)
interest rate hike tomorrow and looking for further
direction."
                                
 A Reuters poll of traders, bank analysts and hedge fund
managers showed many think Brent's rally could stall, with a
majority expecting a drop below $120 a barrel by the end of the
quarter.
                                
 However, many also said tensions in the Middle East could
push prices to $130, or even $150 a barrel in the second half
of the year. For details, see [ID:nN06206555]
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
  Reuters Brent poll results: http://r.reuters.com/ken88r
  ECB in graphics:            http://r.reuters.com/kah88r
  FACTBOX on Libya's oil production:      [ID:nLDE72U0ZR]
  More on Middle East unrest:              [ID:nTOPMEAST]
  For latest U.S. oil inventory data see: [API/S] [EIA/S]
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
                                
 Shipping sources said the first cargo of crude sold by
Libyan rebels sailed from Marsa el Hariga, near Tobruk, on
Wednesday, but a rebel spokesman later said they halted
production at oilfields following attacks by Muammar Gaddafi's
forces. [ID:nLDE73529Y]
                                
 INFLATION FEARS
                                
 "Oil at $120 or more has an effect on economic activity. We
have seen similar levels during times of economic slowdown if
not recession," Richard Jones, IEA deputy director, told
Reuters in Dubai.
                                
 Concerns about rising inflation are expected to lead the
ECB to hike interest rates on Thursday for the first time since
the financial crisis. The euro <EUR=> rose to a 14-month high
against the dollar.
                                
 Dollar weakness has buoyed hard assets priced in the U.S.
currency, with the 19-component Reuters-Jeffries CRB commodity
price index <.CRB> hitting its highest since early March.
                                
 But analysts have warned that tighter monetary policy is
soon to follow in the United States, with the end of the second
round of quantitative easing in sight. Cheap money is viewed by
some as inflating the value of commodities, such as oil, and
prices could fall as central banks move to dampen inflation.
  (Additional reporting by Dmitry Zhdannikoz in London; editing
by Dale Hudson and Jeffrey Benkoe)