Oil rises above $106 amid Middle East conflict

By Pablo Gorondi

Associated Press

Published: Thursday, March 24 2011 2:23 p.m. MDT

James Moody fills up his car's tank with gasoline Tuesday, March 22, 2011, in St. Louis. Oil prices rose above $104 per barrel Tuesday as traders continued to focus on a series of international crises that will drive world supply and demand this year.

Jeff Roberson, Associated Press

Enlarge photo»

Oil prices rose above $106 a barrel Thursday as a wave of violent protests and uprisings rocked the oil-rich Arab world and U.S. gasoline inventories fell sharply.

By midday in Europe, the benchmark crude for May delivery was up 61 cents at $106.36 a barrel in electronic trading on the New York Mercantile Exchange. The contract added 78 cents to settle at $105.75 on Wednesday, the highest close since Sept. 26, 2008.

In London, Brent crude was down 10 cents at $115.45 a barrel on the ICE futures exchange.

The Nymex contract has jumped over 25 percent since Feb. 15 as violent conflict roils the Middle East and North Africa.

Israeli warplanes hit Hamas targets in Gaza early Thursday, retaliating for rocket attacks on Israeli cities and a bus stop bombing in Jerusalem a day earlier.

Coalition missiles strikes have pounded forces loyal to Libyan leader Moammar Gadhafi for five days, giving rebels breathing room to regroup. With Gadhafi refusing to step down and U.S. President Barrack Obama ruling out a land invasion, the conflict could face a stalemate that keeps most of the OPEC nation's 1.6 million barrels a day of crude production shut down longer than investors had initially anticipated.

In Syria, a crackdown on anti-government protests escalated Wednesday as police killed at least 15 demonstrators in the southern city of Daraa. Meanwhile, Yemen declared a 30-day state of emergency in a bid to quell an expanding uprising against the 32-year rule of President Ali Abdullah Saleh.

Crude prices were also lifted by signs U.S. consumers aren't letting rising fuel costs crimp demand. The Energy Department said gasoline inventories fell 5.3 million barrels last week, and gasoline stocks are down 8.9 percent during the last five weeks.

"The bulls got themselves into a tizzy because of the reported draw in gasoline," energy consultant The Schork Group said.

Analysts said the draw in gasoline stocks could lead to more gasoline production by refineries and help reduce U.S. oil supplies, which grew by 2.1 million barrels last week.

"Demand has recovered on the one hand, but the U.S. is also likely to export more gasoline because of the production losses in Libya and Japan," said a report from Commerzbank in Frankfurt. "The previous large inventory overhang has thus been fully absorbed in just a few weeks ahead of the driving season, the time of highest demand."

In other Nymex trading for April contracts, heating oil added 1.2 cents at $3.07 a gallon and gasoline gained 0.3 cents to $3.02 a gallon. Natural gas jumped 3.5 cents to $4.37 per 1,000 cubic feet.

Alex Kennedy in Singapore contributed to this report.

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