UPDATE 7-Brent, US crude at 2-1/2 year highs on Libya fears

                                
 * Operations at Libyan ports disrupted -- traders
                                
 * Concern that other big producers could suffer outages
                                
 * Repsol suspends operations in Libya 
 
                                
 (Updates prices, adds fresh analyst comment, Repsol)
                                
 By Claire Milhench
                                
 LONDON, Feb 22 (Reuters) - Both Brent <LCOc1> and U.S. crude
oil <CLc2> rallied to 2-1/2 year highs on Tuesday on concerns
the revolt in Libya could spread to other major oil producers as
companies suspended operations and ports were disrupted.
                                
 "It's like one of those Australian bushfires -- once it
takes hold, it's very difficult to put out," said Michael
Hewson, an analyst at CMC Markets. "Until the situation in the
Middle East settles down, you are going to have very wild price
swings."
                                
 At 1334 GMT, Brent crude oil futures for April delivery were
up $1.50 to $107.24, after earlier touching $108.57. U.S. crude
for April delivery was up $6.90 at $96.61 as markets became
increasingly nervous about a spread of unrest.
                                
 The jump in U.S. crude is partly explained by the fact that
electronic trading of the contract occurred on Monday, but there
was no settlement close as the exchange in New York was closed
for a holiday.
                                
 Libya produces around 1.6 million barrels of oil per day,
and OPEC has spare capacity of up to 6 million barrels, so even
if all exports were stopped this would not create a supply
shortage, said Carsten Fritsch, an analyst at Commerzbank.
                                
 "It is more fears that this might spread to places like
Algeria, Kuwait or the United Arab Emirates," he said.
                                
 Libya is the third-largest oil producer in Africa, and has
Africa's largest proven oil reserves at 44 billion barrels,
according to the U.S. Energy Information Administration.
                                
 Trading sources reported that operations at Libya's ports
had been disrupted by a lack of communication. "The assumption
is that the ports are either already closed or are closing,"
said a trader with a company that buys Libyan oil.
[ID:nLDE71L11T]
                                
 Repsol, the Spanish oil and gas company, said that it had
suspended all operations in Libya, including stopping oil
production from the El-Sharara field [ID:nWLB4913].
                                
 This followed staff evacuations by other European oil and
gas firms such as Shell <RDSaL> while German company Wintershall
has wound down production as a precautionary measure.
[ID:nWEB0649] [ID:nLDE71K1NE]
                                
 Iran has also stopped its oil-related activities in Libya
and will evacuate staff in the next 48 hours [nLDE71L1I1].
                                
 Witnesses have said Libyan leader Muammar Gaddafi has used
tanks, helicopters and warplanes to put down the revolt, bombing
parts of the capital Tripoli, which has drawn condemnation from
world leaders [ID:nL3E7DM0K1] [ID:nLDE71L0W5].
                                
 The Arab League plans to hold an emergency meeting in Cairo
at 1500 GMT to discuss the Libyan revolt. [ID:nLDE71L0BP]
                                
 Cracks have appeared among Gaddafi's supporters, with some
ambassadors resigning and the Libyan mission to the United
Nations calling on the army to "move towards Tripoli and cut the
snake's head". [ID:nL3E7DM0OW]
                                
 U.S. crude for March delivery <CLc1>, which expires on
Tuesday, was up $6.80 at $93.00 after also earlier touching a
2.5-year high at $94.49.
                                
 Hewson thought U.S. crude could rally further when New York
opens this afternoon. "Brent has broken above a key level at
$105, so the bias will remain to the upside while Libya is in
flames," he said. 
                                
 He pointed out that there were also tensions in Bahrain
which are raising fears the unrest could spill over the border
into Saudi Arabia. [ID:nLDE71I05X]
                                
 "Never assume anything in this business," he said. "While at
the moment Saudi Arabia is quiet, there is a worry it could
spread."
                                
 
                                
 SUPPLY DISRUPTION
                                
 Saudi Arabia is hosting the International Energy Forum in
Riyadh today and attendees have been voicing their concern about
rising oil prices [nLDE71L1KV].
                                
 The talks aim to narrow the gap between producer and
consumer nations, but the turmoil in Libya has overshadowed the
event, forcing ministers to send messages of reassurance to the
market.
                                
 James Zhang, oil analyst at Standard Bank Commodities said
that although OPEC and the IEA are likely to act in the event of
severe supply disruption, they are likely to be behind the
curve. "Therefore, we expect a volatile market for oil in the
near term," he said.
 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
                                
   Factbox on Libyan oil production, exports: [ID:nLDE71L0Y4]
                                
   Libyan oil map: http://r.reuters.com/jem28r
                                
   Interactive factbox on MidEast, Africa:
http://link.reuters.com/puk87r
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Additional reporting by Francis Kan; editing by Keiron
Henderson)