Brent oil hits 2-1/2 year high on Israel-Iran tension

NEW YORK (Reuters) - Brent oil prices surged to near 2-1/2 year highs on Wednesday as fresh tensions between Israel and Iran added to markets already on edge over spreading unrest in the Middle East.

Israel's Foreign Minister, Avigdor Lieberman, said two Iranian warships planned to sail through the Suez canal en route to Syria and called the move a "provocation", sending up prices in morning U.S. trade.

Later, the ships were identified by an Israeli newspaper as a frigate and a supply vessel, which would not present a significant danger to the Jewish state. Israel's state-funded television said Lieberman, a far-right partner in the conservative coalition, had spoken out of turn as the Defense Ministry "had preferred to ignore" the ships' approach.

Brent crude posted its highest close since September 2008, settling up $2.14 at $103.78 a barrel after rising as high as $104.52. U.S. crude settled up 67 cents at $84.99, rising after three days of losses.

Oil markets were already jittery after reports of clashes in Iran, Yemen and Bahrain and a rare show of unrest in Libya added to fears that the kind of unrest that toppled the presidents of Egypt and Tunisia could spread to oil-producing countries in the Middle East and disrupt oil flow in the region.

"Troubles in the Middle East are back on the agenda, protests in Bahrain and Saudi have drummed up political tension," said Rob Montefusco, an oil trader at Sucden Financial.

The popular uprising in Egypt had helped push Brent crude over $100 a barrel in late January, sending its premium to U.S. oil futures to record levels over $16 a barrel.

Brent's stronger gains pushed its premium to U.S. crude to a record $16.31 a barrel on Wednesday.

U.S. CRUDE, GASOLINE STOCKS UP

Also helping widen the 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 January 28, the U.S. Energy Information Administration's weekly data showed.

In total, U.S. crude stocks rose 860,000 barrels, to 345.9 million barrels, up for the fifth straight week, and initially weighing on U.S. crude futures, even though the increase was much less than the forecast.

U.S. gasoline stockpiles gained for the seventh week in a row, adding 200,000 barrels, much less than expected, to 241.1 million barrels.

Even so, the gasoline crack spread rose to $22.01 a barrel, the highest in 3-1/2 years. (Reporting by Matthew Robinson and Robert Gibbons in New York, Jessica Donati in London and Jennifer Tan in Singapore; Editing by Lisa Shumaker and David Gregorio)