* Israel-Iran tensions, spreading MidEast unrest boost Brent
* Rise in weekly US crude inventories pressures WTI
* Coming Up: weekly jobless claims, Jan CPI, leading
indicators
(Updates with fall in US crude prices)
By Jennifer Tan
SINGAPORE, Feb 17 (Reuters) - London crude prices extended
gains to hold at 2-1/2 year highs of more than $104 a barrel on
Thursday, as fresh Israel-Iran tension fed spreading unrest in
the Middle East and stoked fears of a disruption of oil flows in
the region.
U.S. oil gave up its morning gains to fall below $85 a
barrel, after industry data showed crude inventories rose last
week, although the increase was lower than expected.
A raft of U.S. economic reports, due later in the day, will
provide more trading cues. The data scheduled for release
include weekly jobless claims, January consumer price index and
the Conference Board's leading economic indicators.
"Brent is still on an uptrend, and depending on the economic
data that comes out of the United States tonight, it could
easily hit $105 later in the day," said Ken Hasegawa, a
commodity derivatives manager at Japan's Newedge brokerage.
"WTI continues to look bearish from both a fundamental and
technical point of view, so the spread could widen further --
it's possible for it to cross $20 over the next few weeks."
Brent crude for April delivery rose 27 cents to
$104.05 a barrel by 0730 GMT, after settling $2.14 higher at
$103.78, its highest close since September 2008, and off an
earlier high of $104.52.
U.S. crude for March delivery eased 3 cents to $84.96
a barrel, after settling up 67 cents at $84.99, snapping three
straight days of losses.
The spread between the two grades <CL-LCO1=R> held above
$16, after hitting a fresh record of $16.31 a barrel in the
previous session.
Fresh tensions between Israel and Iran continued
to rattle markets already spooked by spreading anti-government
protests in the Middle East, raising the spectre of a supply
disruption in this key oil-producing region.
Two Iranian warships planned to sail through the Suez Canal
en route to Syria on Wednesday, Israel's foreign minister said,
calling it a "provocation", but the vessels were seen as posing
no serious military threat.
Clashes were reported in tightly controlled oil producer
Libya, sandwiched between Egypt and Tunisia, while new protests
erupted in Bahrain, Yemen, Iran and Iraq on Wednesday.
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, U.S. 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.
U.S. economic indicators due later are expected to show an
uneven recovery in the world's top energy consumer.
The Labor Department will unveil first-time claims for
jobless benefits for the week ended Feb. 12 at 1330 GMT.
Economists forecast a total of 400,000 new filings against
383,000 in the prior week.
January consumer price data will also be released at 1330
GMT. Economists expect a 0.3 percent increase compared with a
0.4 percent rise in December.
The Conference Board will release its report on January's
leading economic indicators at 1500 GMT. Economists forecast a
0.2 percent rise compared with a 1.0 percent increase in the
prior month.
Asian stock markets rose on Thursday, buoyed by strong
corporate earnings and as the Federal Reserve expressed cautious
optimism about the strength of the U.S. economic recovery amidst
lingering concerns over high unemployment levels.
The dollar hit a one-week low against a basket of currencies
on Thursday, hurt by worries over rising tensions in the Middle
East and as subdued U.S. economic data helped keep U.S. bond
yields in check.
The dollar index , which tracks the greenback's
performance against a basket of major currencies, was nearly
unchanged at 78.197.
(Reporting by Jennifer Tan; Editing by Clarence Fernandez)
