* Brent touches $116.40, up 0.6 pct, as Yemen unrest flares
* Investors concerned unrest may spread to Saudi Arabia
* Technicals show Brent may rise to $118.50
* Coming Up: EIA U.S. weekly oil inventory report
By Alejandro Barbajosa
SINGAPORE, March 23 (Reuters) - Brent crude rose as much as
0.6 percent on Wednesday, consolidating gains above $116, as an
intensifying unrest in Yemen highlighted the security risks
facing oil output from the Arabian peninsula, home to the
world's biggest oil fields.
May Brent climbed as much as 70 cents to $116.40 a
barrel and was up 47 cents at $116.17 by 0253 GMT, while U.S.
crude for May , the front-month contract after April
expired on Tuesday, gained 8 cents to $105.05.
Yemen's president said his country would descend into civil
war if he were forced to quit and Washington voiced concern
about instability in the Arab state, from where al Qaeda has
attempted to launch attacks on Saudi Arabia.
"The market is still very vulnerable to further disruptions
to supply," said Tetsu Emori, a Tokyo-based commodities fund
manager at Astmax Investments. "People are quite nervous about
the current turmoil spreading to Saudi Arabia."
Thousands of Yemeni protesters took to the streets on
Tuesday, clamoring for President Ali Abdullah Saleh to step
down. Several top officials have already defected to the
opposition.
Yemen, a crude-exporting country, lies at the southern end
of the Red Sea, along which runs a key shipping lane for oil
trade between the Mideast Gulf and Europe.
The neighbouring Saudi kingdom is the only OPEC member
nation with enough spare capacity to compensate for further
disruptions to output from medium-sized producers like Libya,
where exports have come to a virtual standstill in the midst of
the country's civil war.
Western powers pounding Libya's defences will wind up in the
dustbin of history, said leader Muammar Gaddafi as his troops
held back rebel advances despite four nights of attacks from the
air.
Before the strikes Libya's oil output was already reduced to
less than a quarter of the previous 1.6 million barrels per day,
nearly paralysing shipments abroad from what used to be the
world's 12th largest crude exporter.
Western nations waging the air campaign in Libya agreed on
Tuesday to use NATO to drive the military effort but lack the
backing of all alliance members and remain divided on the
mission's leadership.
Oil markets were also keeping an eye on developments in
Japan, where engineers continued their struggle to cool reactors
at a tsunami-smashed nuclear plant.
"People believe that oil demand in Japan is coming back
after going down with the earthquake," Emori said. "With the
nuclear plant destroyed, oil should be necessary to supply power
generators."
Japan will allow the release of an additional 22 days' worth
of oil from privately held reserves, its trade ministry said, in
a bid to ease energy shortages in parts of the country
devastated by a massive earthquake and tsunami.
U.S. INVENTORY
In a report late on Tuesday, the American Petroleum
Institute (API) reported that U.S. crude inventories rose less
than expected last week and gasoline stocks posted a huge drop,
despite a jump in both crude and product imports and a small
increase in refinery run rates.
Government data on inventories from the Energy Information
Administration follows on Wednesday.
U.S. crude stockpiles probably gained 1.6 million barrels in
the week to March 18 on average, following seasonal tendencies,
a Reuters poll of analysts showed.
(Editing by Himani Sarkar)
