Brent crude tops $103 as Egypt violence escalates

SINGAPORE (Reuters) - Brent crude surpassed $103 on Thursday after violent clashes in Egypt raised the prospect of further unrest across the Middle East, overshadowing the bearish effect of soaring gasoline inventories in top consumer the United States.

ICE Brent crude for March rose as much as $1.03 to $103.37 a barrel, the highest intraday price since Sept. 26, 2008, and was up 88 cents at $103.22 at 0419 GMT. U.S. crude for March rose 66 cents to $91.52.

Front-month Brent has rallied more than $8 since the unrest in Egypt started from about $95 a barrel on Jan. 25. That 9 percent gain in slightly over a week is more than a third of last year’s total increase of 22 percent.

“The chance of contagion to a country that is systemically important for oil markets still remains relatively low, but it’s the combination of that possibility and the importance of oil flows from the Red Sea to the Mediterranean through the Suez Canal that is building a premium” into prices, said Ben Westmore, commodities economist at National Australia Bank.

Supporters of President Hosni Mubarak opened fire on Thursday on protesters camped out in Cairo’s Tahrir Square, wounding at least seven, witnesses said.

The crisis has also alarmed western governments who have regarded Mubarak as a bulwark of stability in a volatile region, and has raised the prospect of unrest spreading across the Middle East and North Africa, which combined produce more than a third of the world’s oil supplies.

The appearance of Mubarak supporters on Cairo’s streets and their clashes with protesters -- after days of relatively calm demonstrations -- complicated U.S. calculations for an orderly transition of power in Egypt.

So far, the unrest in Egypt has not affected traffic on the Suez Canal or flows on the Suez-Mediterranean (SUMED) oil pipeline. Egypt controls both the canal and the duct, which together moved over 2 million barrels per day (bpd) of crude and oil products in 2009, the latest data available.

“Once the tensions there begin to moderate, then you will have the market focusing again on fundamentals. We still have this abundant supply, so there is definitely more downside than upside,” Westmore added.

U.S. crude inventories rose 2.59 million barrels to 343.16 million barrels in the week to Jan. 28, the Energy Information Administration said on Wednesday, while stockpiles of gasoline surged by 6.15 million barrels to 236.23 million barrels, the highest level since 1993.

Inventories at the key Cushing, Oklahoma terminal rose 667,000 barrels to 38.33 million barrels, a record. Cushing in PADD 2 is the delivery point for the New York Mercantile Exchange’s benchmark West Texas Intermediate crude futures.

The glut is depressing the price of WTI relative to Brent, with the front-month contract of the U.S. benchmark more than $11 below the European marker. The spread last week ballooned to a near-record $12.50 a barrel.

A massive winter storm, meanwhile, brought parts of the U.S. Midwest to a standstill and delivered another wintry blow to the Northeast, the biggest market for heating oil.

The U.S. March heating oil contract settled 2.37 cents higher at $2.7807 a gallon, the highest for a front-month heating contract since October 2008. It extended gains on Thursday to $2.7868 a gallon.

Japanese stocks eased on Thursday as escalating violence in Egypt prompted investors to move to safer assets, while commodities extended their recent gains, underscoring growing inflationary pressures that could threaten the global economic recovery.