* Strong prices raise prospect of demand erosion
* Portugal asks for EU help, ECB lifts interest rates
* Fall in weekly U.S. jobless claims supportive
(Recasts, updates prices, adds new by-line and changes
dateline, previously LONDON)
By Gene Ramos
NEW YORK, April 7 (Reuters) - Brent crude futures dipped on
Thursday, as investors worried after five days of gains that
oil had become expensive enough to crimp economic growth and
cut demand.
Prices also came under pressure after a major earthquake
struck Japan, the world's third largest economy still reeling
from last month's earthquake and tsunami.
Brent crude for May delivery <LCOc1> dipped 15 cents to
$122.16 a barrel by 12:10 p.m. EDT (1612 GMT). It hit a
2-1/2-year high of $123.37 on Wednesday, as violence in the
Middle East continued to stoke supply fears.
"The news of another Japan earthquake may have panicked the
market and prompted some profit taking," said Gene McGillian,
analyst at Tradition Energy in Stamford, Connecticut.
There are signs crude futures are taking a breather after
the rally to 2-1/2 year highs, but the upward momentum remains
intact, McGillian added.
U.S. May crude futures <CLc1> rose 56 cents to $109.39 a
barrel, after having hit $109.56, highest in 30 months, helped
by U.S. government data showing weekly claims for unemployment
benefits fell slightly, adding to signs of a firming labor
market conditions. []
ECB MOVE SPURS DEMAND WORRIES
As expected, the European Central Bank lifted interest
rates for the first time since the 2008 financial crisis and
signaled readiness to tighten further if needed.
[]
The ECB raised rates by 25 basis points to 1.25 percent,
which added worries about erosion of oil demand after China
also lifted interest rates this week. Dealers also say markets
may wobble as other central banks remove easy-money policies.
"At current crude oil prices, the risk is turning more and
more to the amount of potential demand destruction,'
Petromatrix's Olivier Jakob said.
But other analysts pointed to supply uncertainty spawned by
unrest in Middle East flashpoints and the conflict in Libya.
Euro zone debt worries and inflation are high on the agenda
after Portugal overnight asked for an EU bailout and on
concerns that a rise in euro zone interest rates would push up
the cost of debt for already highly indebted economies.
"Products futures are high enough that too much more and it
could trigger some demand destruction, especially for gasoline,
with supplies pretty ample in the U.S. But the Middle East and
Libya keep the uncertainty in the market," said Gene McGillian,
an analyst at Tradition Energy in Stamford, Connecticut.
Oil prices slipped from recent 2-1/2 year highs even after
rebels said Muammar Gadaffi forces damaged a pipeline
connecting oilfields to the port town of Marsa el Hariga, with
analysts noting supply disruptions are already priced in.
Prices are unsustainable at current levels in the absence
of other disruptions, said VTB Capital analyst Andrey
Kruychenkov said prices were
"We can't possibly justify a further sustained boost to
prices unless unrest erupts in an oil-producing country other
than Libya with serious threats to crude supplies,"
Kryuchenkov said.
(Additional reporting by Robert Gibbons and Ed Mcallister in
New York; Zaida Espana in London; Florence Tan in Singapore;
Editing by David Gregorio)
