* Brent within dollar of 2-1/2 year high
* US crude also down ahead of EIA weekly inventory report
* But downside limited due to ongoing Gulf unrest
(Adds quotes, updates throughout)
By Seng Li Peng
SINGAPORE, April 6 (Reuters) - Brent crude edged down to
$122 a barrel on Wednesday, but prices stayed within a dollar of
a 2-1/2 year peak as widespread unrest in the Middle East and
North Africa raised worries over supply.
China hiked interest rates on Tuesday for the fourth time
since October as it worked to tame inflation. Tightening
monetary policy could slow fuel demand growth in the world's
second-largest oil consumer.
That, and forecasts for a rise in U.S. stockpiles in
government data due out later on Wednesday, dampened sentiment
after Brent's four-day, 6-percent rally.
Brent crude <LCOc1> fell 19 cents to $122.03 a barrel at
0647 GMT after rising to $122.89 on Tuesday, the highest since
August 2008.
U.S. crude <CLc1> shed 8 cents to $108.26 a barrel, after
reaching a 2-1/2 year peak of $108.78 on Monday.
"Prices are slightly off and that could be due to the
Chinese interest hike, which should not be a surprise although
the timing was unexpected," said Singapore-based Serene Lim of
ANZ.
But the impact from the hike will be mitigated by the
turmoil in Libya, she said.
"It is a stalemate in Libya and this will give support to
the oil prices, which are trading at a very tight range."
Technical analysis showed Brent could rise above $126, said
Reuters analyst Wang Tao. []
"Technically, it is possible for Brent to go to $125 a
barrel within this week," said Ken Hasegawa, commodity
derivatives manager at Japan's Newedge brokerage.
Brent's rally to above $120 a barrel could soon fizzle out,
according to a majority of traders and analysts in a Reuters
poll released on Wednesday. But they expected Brent to roar back
above $130 in the second half of this year. []
For now, the loss of Libyan output due to civil war has been
priced into the market and the lack of any immediate threat to
other Middle East supplies could see prices fall back, traders
and analysts polled said.
Attempts to control inflation beyond China may also impact
oil demand. The European Central Bank was expected to raise its
rates on Thursday for the first time since the global financial
crisis.
Inflation, fuelled by high energy and commodities prices,
was a threat to the economic growth in Asia that is spearheading
the global economic recovery, the Asian Development Bank said on
Wednesday. []
MIDEAST UNREST
In Libya, the head of the rebel army said NATO had been too
slow to order air strikes to protect civilians. []
Stalemate on the front line of fighting in eastern Libya,
defections from Gaddafi's circle and the plight of civilians
caught in fighting or facing food and fuel shortages has
prompted a flurry of diplomacy to find a way to end the war.
Top oil exporter Saudi Arabia has stepped in to fill the gap
in supply, eroding its spare capacity and exacerbating concern
that it might struggle to fill another significant supply
outage.
For investors, the worse-case scenario would be for unrest
to spread to the kingdom, threatening both 10 percent of global
oil supply and most of the world's spare capacity to deal with
outages elsewhere.
Oil prices could rocket to $200-$300 a barrel if the world's
top crude exporter Saudi Arabia is caught in the serious
political unrest, former Saudi oil minister Sheikh Zaki Yamani
told Reuters on Tuesday. []
He said he saw no immediate signs of further trouble
following protests last month calling for political reforms but
added that underlying discontent remained unresolved.
Unrest in Saudi neighbours continues. Yemeni President Ali
Abdullah Saleh urged opposition to join talks in Saudi Arabia to
try to end weeks of turmoil and violence there. []
Kuwait's emir on Tuesday asked the outgoing prime minister
to form a new government after the cabinet resigned to avoid
possible questioning over the issue of unrest by Shi'ites in
neighbouring Bahrain. []
In Bahrain, firms have fired hundreds of mostly Shi'ite
Muslim workers who went on strike to support pro-democracy
protesters, an opposition group said on Tuesday, in what
appeared to be part of a government crackdown. []
(Reporting by Seng Li Peng; Editing by Ed Lane and Simon Webb)
