(Refiles to add dropped word "yr" in headline)
* High prices raise prospect of demand erosion
* Portugal asks for bailout, ECB lifts interest rates
* Fall in U.S. jobless claims supportive
(Recasts, updates with settlement prices, market activity)
By Gene Ramos
NEW YORK, April 7 (Reuters) - Oil prices ended at
2-1/2-year highs on Thursday as supply worries tied to fighting
in Libya and Middle East turmoil overshadowed demand concerns
spurred by a boost in euro zone interest rates and as a major
aftershock struck Japan.
Brent crude for May delivery <LCOc1> rose for a sixth day,
settling 37 cents higher at $122.67 a barrel, the highest since
Aug. 4, 2008.
U.S. May crude futures <CLc1> closed up $1.47 at $110.30 a
barrel, the best since Sept. 22, 2008, gaining for the fifth
day in six sessions.
Brent's premium against U.S. crude, also known as West
Texas Intermediate (WTI), narrowed to $12.37 at the close,
after ending at $13.47 on Wednesday. <CL-LCO=R>
Trading volumes remained lean. In London, Brent crude
volume was 396,378 lots, 17 percent below the 30-day average at
3:10 p.m. EDT (1910 GMT). In New York, U.S. crude volume hit
585,932, 9 percent below the 30-day average, with two hours
left for trading.
U.S. crude rose after U.S. data showed claims for
unemployment benefits fell, adding to signs of a strengthening
labor market. For details, see []
A major aftershock struck northeast Japan on Thursday. The
latest quake added to concerns that oil demand would dip in
Japan, the world's third largest economy that is already
reeling from devastation caused by last month's quake and
tsunami. []
Analysts agreed that despite earlier divergence in Brent
and U.S. crude prices, the market's upward momentum was intact
as uncertainties in Libya and the Middle East continued to add
to geopolitical risks.
Also of concern, OPEC member Nigeria postponed elections
again in some areas, though polls will go ahead in most of the
country on Saturday. []
DEMAND WORRIES
As expected, the European Central Bank (ECB) lifted
interest rates for the first time since the 2008 financial
crisis and signaled readiness to tighten further if needed.
[]
Dealers said 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 analyst Olivier Jakob said.
Investors also cited worries over high euro zone debt
levels and inflation as Portugal asked for an European Union
bailout. A rise in euro zone rates would push up the cost of
debt for countries already highly indebted.
"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 earlier slipped from recent 2-1/2-year highs,
even after rebels said Muammar Gaddafi's forces damaged a
pipeline connecting oilfields to the port town of Marsa el
Hariga. 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.
"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 and Jeffrey Benkoe)
