* Strong prices raise prospect of demand erosion
* Portugal asks for EU help, ECB lifts interest rates
* U.S. weekly unemployment claims fall more than expected
* Technicals: Brent to retrace to $119.79/bbl []
(Updates prices, adds quotes, U.S. data)
By Zaida Espana
LONDON, April 7 (Reuters) - Brent crude futures dipped on
Thursday after five days of gains, hovering around $122 a barrel
on concerns that strong prices could crimp demand, with the
European Central Bank lifting rates to control inflation.
Brent crude <LCOc1> shed 42 cents to $121.88 a barrel by
1500 GMT. It hit a 2-1/2-year high above $123 on Wednesday,
driven by violence in the Middle East.
U.S. crude futures <CLc1> were 21 cents stronger to $109.05
a barrel after touching $109.15 on Wednesday, their highest
level since September 2008.
In the U.S., new claims for unemployment benefits fell
slightly more than expected, while across the Atlantic the ECB
lifted interest rates in line with expectations to 1.25 percent
as it intensifies the fight against inflation. []
Analysts said the market focus had switched from supply
disruptions related to the Middle East protests to demand
erosion after the ECB move, and after the Chinese central bank
also lifted rates earlier this week.
"At current crude oil prices, the risk is turning more and
more to the amount of potential demand destruction,"
Petromatrix's Olivier Jakob said.
Euro zone debt worries and inflation are high on the agenda
after Portugal overnight asked for an EU bailout and on concerns
that a rise in euro zone interest rates would push up the cost
of debt for already highly indebted economies.
Oil prices slipped from recent 2-1/2 year highs even after
rebels said Muammar Gadaffi forces damaged a pipeline connecting
oilfields to the port town of Marsa el Hariga, with analysts
noting supply disruptions are already priced in. []
"Products futures are high enough that too much more and it
could trigger some demand destruction, especially for gasoline,
with supplies pretty ample in the U.S. But the Middle East and
Libya keep the uncertainty in the market," said Gene McGillian,
an analyst at Tradition Energy in Stamford, Connecticut.
"But choppy trading after we post new highs shows the crude
rally may be gasping for breath a little bit".
VTB Capital analyst Andrey Kruychenkov said prices were
unsustainable at current levels in the absence of other
disruptions.
"We can't possibly justify a further sustained boost to
prices unless unrest erupts in an oil-producing country other
than Libya with serious threats to crude supplies," VTB Capital
analyst Andrey Kryuchenkov said.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Reuters Brent poll results: http://r.reuters.com/ken88r
ECB in graphics: http://r.reuters.com/kah88r
China fuel price rise: http://link.reuters.com/xaq88r
Middle East unrest: []
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INFLATIONARY PRESSURE
Strong crude futures have pushed up prices at the pump
globally, further exacerbating the inflationary pressure
governments face from the rising cost of food and raw materials.
In Asia, China's central bank lifted interest rates this
week for the fourth time since October as it ramps up the battle
against inflation. []
"Current price levels should have a negative impact on
demand," said Tetsu Emori, a Tokyo-based commodities fund
manager at Astmax Investments.
The International Energy Agency said on Wednesday the
current oil price is harming global economic growth and is a
mounting concern for consuming nations. []
Saudi Arabia and the United Arab Emirates have raised output
to compensate for supply loss from Libya, but there has been no
coordinated supply policy response from OPEC to rein in high
prices. []
"The nature of this lack of response and general drift of
recent policy statements suggests that producers are a long way
from seeking actively to bridle in the upside for prices,
leaving the door to $130 Brent swinging open," analysts at
Barclays Capital led by Paul Horsnell said in a note.
On Wednesday, weekly U.S. government data showed gasoline
demand at the world's top oil consumer fell 1.2 percent from
year-ago levels as prices at the pump neared $3.70 a gallon.
Gasoline demand should pick up as the U.S. driving season
begins, but high prices would temper growth in consumption.
(Additional reporting by Robert Gibbons in New York and
Florence Tan in Singapore; editing by James Jukwey)
