North Sea Brent crude oil steadied around $104 per barrel today, near a two-and-a-half-year high, as Israel-Iran tension and unrest in the Middle East stoked fears of a disruption of oil flows.
Bahrain police stormed a square in Manama, killing at least three people as protests in the Middle East and North Africa, inspired by revolts in Tunisia and Egypt, gathered pace.
Clashes were reported in tightly controlled oil producer Libya, sandwiched between Egypt and Tunisia, and people there prepared to take to the streets for a "day of rage" after new protests erupted in Yemen, Iran and Iraq.
The dollar hit a one-week low against a basket of currencies on worries over rising Middle East tension.
"All in all, the pace of change sweeping the region is truly mind-boggling, and we find it unlikely oil prices will 'settle' any time soon as long as this kind of upheaval continues to spread," said Edward Meir, senior commodity analyst at brokers MF Global.
Brent crude for April delivery slipped 12 cents to $103.66 by 1200 GMT, after settling $2.14 higher at $103.78 yesterday, its highest close since September 2008, and off an earlier intraday high of $104.52.
US crude for March delivery fell 26 cents to $84.73 a barrel, after settling up 67 cents at $84.99 yesterday, snapping three straight days of losses.
A Reuters poll of analysts and banks suggested today that Brent would drop later this year as the risk premium from unrest in the Middle East ebbs.
"The current price is unsustainable," said Carsten Fritsch, commodity analyst at Commerzbank in Frankfurt. "Tension in the Middle East should calm down at some point, whereas (North Sea) output should normalise," he said.
Nomura analyst Michael Lo said Middle East unrest had added a 5 per cent risk premium to oil prices. "The risk premium could dissipate on any signs of the protests cooling off."
The spread between Brent and US crude held above $16 per barrel after hitting a record of $16.31 a barrel yesterday.
Tensions between Israel and Iran kept pressure on markets. Suez Canal officials said today plans by two Iranian naval ships to cross the waterway had been cancelled.
Israeli Foreign Minister Avigdor Lieberman said yesterday the ships were expected to pass through the Suez Canal overnight en route to Syria in a move he described as a "provocation".
US crude was depressed by industry data showing crude stocks rose last week, albeit less than expected.
Also helping widen the Brent-WTI premium was the latest rise in inventory levels at the Cushing, Oklahoma, delivery point for the New York Mercantile Exchange oil futures contract.
Crude stored at the hub rose 250,000 barrels last week to 37.7 million barrels, just below the 38.3 million barrel record level hit in the week to Jan. 28, the Energy Information Administration's weekly data showed.
In total, US crude stocks rose 860,000 barrels to 345.9 million barrels, its fifth straight weekly gain, but the increase was less than the forecast 2.2 million-barrel rise.
Reuters
