U.S. crude oil hits 2.5-year high

LONDON (Reuters) - Brent crude rose toward $120 a barrel and U.S. crude hit a 2-1/2-year high above $108 on Monday. Unrest in the Middle East and North Africa kept the focus on oil supplies as economic growth bolstered demand.

Iran's oil minister said there was no need for the Organization of the Petroleum Exporting Countries to hold an extraordinary meeting, adding to price support.

Iran is holder of OPEC's rotating presidency in 2011.

ICE Brent rose $1.05 to a high of $119.75 a barrel, its highest since February 24, before slipping back to trade around $119.50 by 1223 GMT (8:23 a.m. ET).

U.S. crude was up 30 cents at $108.24 a barrel by 1223 GMT, after touching $108.78 earlier in the session, its highest since September 2008.

Edward Meir, senior commodity analyst at brokers MF Global, said investors seemed to be in no mood to sell the markets despite the "less than compelling fundamental backdrop."

Analysts say the loss of oil from Libya has been more or less offset by Saudi Arabia, while the Japanese crisis should also reduce oil import demand, suggesting "there likely is a statistical surplus in the system right now," Meir said.

"However, participants are not bothering with data for the moment, as the focus remains on headlines out of the Middle East. Moreover, the fact that global growth has yet to show any significant sign of decelerating is also keeping the "buy commodities" theme very much intact," he added.

The government of Libya -- the world's 17th-largest oil producer and Africa's third-largest -- has sent an envoy to Greece to discuss an end to fighting, but gave no signs of any major climb down in a war that has ground to a stalemate between rebels and forces loyal to Muammar Gaddafi.

NORTH SEA DELAYS

Tension in the Middle East continued to support sentiment while supply disruptions elsewhere also bolstered prices.

In Yemen, police using live rounds and tear gas wounded hundreds of protesters marching on a presidential palace in the Red Sea city of Hudaida on Monday in a sign of fraying nerves as the political crisis deepened.

An oil workers' strike in Gabon has stopped production of around 240,000 barrels per day (bpd) of mainly low sulphur crude oil, industry sources said.

And in the North Sea, loadings of benchmark Forties crude oil have been delayed by some days due to problems with the Buzzard oilfield, Britain's largest.

Saudi Arabia and Kuwait both said on Monday they thought oil prices should ideally be below current levels.

Farouk al-Zanki, chief executive of Kuwait Petroleum Corp, said he would like to see world oil prices decline but did not expect them to fall below $90 a barrel. He was quoted as saying $90 to $100 would be "the fair price" for crude.

A Saudi official told Reuters on Monday the kingdom had not changed its view of the optimal level for oil prices and was still seeking $70 to $80 a barrel.

Carsten Fritsch, analyst at Commerzbank in Frankfurt, said oil prices could fall later this year if the political situation in the Middle East allowed worries over supply to ease.

"In the short-term, oil prices look very well supported," he said. "The general market sentiment is positive. But we still feel that prices will come down later this year once the supply fears have dissipated."

(Additional reporting by Seng Li Peng in Singapore; editing by William Hardy)

Source:Reuters US Online Report Business News