* U.S. considers tapping emergency stockpiles to lower
prices
* U.S. crude rallies almost $2/bbl, closes in on Brent
* Clerics forbid protests in top exporter Saudi Arabia
* Coming Up: ECB's Trichet presser; 1130 GMT
(Adds context on potential IEA stockpile release)
By Alejandro Barbajosa
SINGAPORE, March 7 (Reuters) - U.S. crude rose to a
2-1/2-year high on Monday as civil war brewed in Libya, while
investors kept a close eye on top exporter Saudi Arabia, where
clerics forbid protests at the weekend and home to most of
OPEC's spare capacity.
April U.S. crude rose as much as $1.97 to $106.39 a
barrel, the highest price since September 2008, adding to
concerns that high energy costs may derail the global economic
recovery. It was up $1.79 at $106.21 at 0618 GMT.
This year's 16 percent rally in U.S. crude has prompted the
Obama administration to consider releasing emergency oil
stockpiles as policymakers seek ways to contain a negative
spillover to the world's biggest economy.
"The concern is that with what we are seeing in Libya, it's
purely fear driving the market," said Jonathan Barratt, managing
director at Commodity Broking Services in Sydney.
Saudi Arabia has pledged to fill any supply gap caused by
the disruption of exports from Libya. The kingdom is pumping
around 9 million bpd and has spare capacity of around 3.5
million bpd, a senior Saudi source told Reuters last week.
But Saudi Shi'ites last week staged small demonstrations in
the Eastern Province, which holds much of the kingdom's oil
wealth, leading clerics to ban protests.
"Each time the price moves up a little, people are forced
into the market. Once it's feeding itself, it will continue to
rise," Barratt said, adding $120 may be the peak without further
supply disruptions.
ICE Brent crude for April gained $1.25 to $117.22,
still more than $2 away from the contract's peak this year at
$119.79 on Feb. 24. Its premium over U.S. benchmark West Texas
Intermediate (WTI) has narrowed to about $11 from more than $15
last week.
Saudi security forces have detained at least 22 minority
Shi'ites who protested last week against discrimination,
activists said on Sunday, as the kingdom tried to keep the wave
of Arab unrest outside its borders.
The kingdom's Eastern Province is near Bahrain, the scene of
protests in recent weeks by majority Shi'ites against their
Sunni rulers. More than 17,000 people backed a call on Facebook
to hold two demonstrations in Saudi Arabia this month, the first
one this coming Friday.
U.S. unemployment in the U.S. fell to near a two-year low in
February, jobs data showed on Friday, but a surge of 23 percent
in Brent prices this year threatens that positive turnaround.
Oil prices may slip back to more "realistic" levels around $80
later this year, Barratt said.
High oil prices also threaten Asian economies. "At $120 a
barrel, we estimate oil prices to shave off 1.5 percentage point
from baseline growth" for Asia excluding Japan, RBS economists
Sanjay Mathur and Erik Lueth said.
EMERGENCY STOCKPILES
White House Chief of Staff William Daley said on Sunday the
U.S. was considering tapping into the strategic petroleum
reserve (SPR) as a way to lower prices, adding that "a bunch of
factors have to be looked at," not just prices.
One of those factors is coordinating with the other 27
member countries of the International Energy Agency (IEA), which
hold emergency stockpiles equivalent to at least 90 days of net
oil imports, counting both government and industry stocks.
Current levels of government-owned supplies are equivalent to
about 1,000 times Libya's pre-crisis daily crude output of 1.6
million bpd. The proportion of crude and products in storage
varies across countries.
As the world's biggest oil consumer, the United States holds
the largest emergency oil stockpiles in the SPR. Four storage
sites in Texas and Louisiana hold a total of 726.6 million
barrels of crude, enough to cover the nation's needs for more
than a month.
Hurricanes Katrina and Rita in 2005, which at the peak
disrupted 1.5 million bpd of U.S. oil output, triggered the
biggest release of emergency stockpiles yet because the storms
also idled refineries in the U.S. Gulf coast, virtually
paralyzing the supply chain of the world's top consumer.
After Katrina the IEA made available 60 million barrels
through a combination of emergency stocks, increased U.S. crude
output and demand restraint.
Japan and South Korea, among the world's top 5 crude oil
importers, have no immediate plans to release oil from strategic
reserves to fill any shortfall left by the unrest in Libya,
industry and government officials said.
News about the potential use of U.S. emergency oil stocks
failed to dampen prices as investors remained jittery that the
unrest in oil-producing nations of the Mideast Gulf may escalate
and affect crude production there.
"It doesn't matter what they say because it's fear," Barratt
said, referring to the Obama administration's possible use of
the SPR. "We have ample supplies after OPEC, led by Saudi
Arabia, stepped in."
GADDAFI COUNTER-ATTACKS
In Libya, troops loyal to Gaddafi launched
counter-offensives against rebel-held towns on Sunday backed by
tanks, artillery, warplanes and helicopters, attacking positions
near the rebel-controlled oil port of Ras Lanuf, 660 km (410
miles) east of the capital.
Gaddafi has lost control to rebels of most of the country's
east, the main oil producing region in the OPEC member nation.
Many oil facilities are idle or working at well below capacity.
Oil sources said refining operations and exports of crude by
firms operating in the town, including units or ventures with
the state-owned National Oil Corp (NOC), had ground to a halt
over previous days because of the unrest and supply problems.
Rebels now hold an area west of Ras Lanuf that includes
al-Sidrah, the last major oil terminal town in the east of the
country. That would mean rebels now have all the main oil
terminals in the east of Libya in their hands.
Libya usually produces 1.6 million bpd, but output has been
slashed by as much as 1 million bpd, according to the IEA.
(Editing by Ed Lane)
