NEW YORK (Reuters) - Oil prices rose 2 percent from near three-week lows on Wednesday as a crackdown on protesters in Bahrain reignited worries unrest in the Middle East could further hit oil supplies.
Concerns about the unrest in Bahrain -- where troops from OPEC kingpin Saudi Arabia have intervened -- as well as intensifying clashes in the streets of Yemen, Syria and Algeria, overpowered a wave of risk aversion caused by the Japan nuclear crisis that hit stock markets.
“The increasing unrest in Bahrain -- and the interest taken by Saudi Arabia in trying to resolve it -- must not be overlooked as a risk driver,” said J.P. Morgan analyst Lawrence Eagles in New York.
Brent for April settled at $110.62, up $2.10, rebounding from its sharpest tumble in 13 months on Tuesday to $107.35, the lowest since February 23.
U.S. crude settled at $97.98 a barrel, up 80 cents, after, having crawled from an early low of $96.22, the lowest since February 25.
Trading was volatile, selling off early peaks as Japan struggled to avert disaster, with risk aversion sending some players to the sidelines and volumes for both Brent and U.S. crude below the 30-day average. U.S. stocks slumped 2 percent and the Nasdaq composite index turned negative for the year.
“Things are pulling back as equities turn negative and people are liquidating and putting money on the sidelines until they figure out what is going to happen in Japan,” said Richard Ilczyszyn, senior market strategist at Lind-Waldock in Chicago.
In Japan, operators of a quake-crippled Daiichi nuclear plant said they would try again on Thursday to use military helicopters to douse overheating reactors and avert disaster after an earlier attempt was abandoned because of high radiation.
Gasoline futures jumped nearly 3 percent in morning U.S. trade after weekly data from the U.S. Energy Information Administration showed a steep 4.17 million barrel draw in stockpiles in the week to May 11. Over the past two weeks, gasoline inventories showed the steepest 14-day drawdown since August 2008 as companies reduced inventories of winter grade fuel ahead of the switch to summer blends.
Crude inventories rose more than analysts had forecast, while distillates showed a larger-than-expected decline.
Near midday, oil pared gains after EU Energy Commissioner Guenther Oettinger warned that Japan’s nuclear site could face a further catastrophe in the coming hours. Oettinger’s spokeswoman later clarified his position, saying his comments were based on his personal fears, which pulled up prices again.
Sparking more worries about Middle East unrest, Iranian President Mahmoud Ahmadinejad was quoted by state television condemning Bahrain’s crackdown on mainly Shi‘ite protesters as unjustifiable.
In Libya, Muammar Gaddafi’s forces have reclaimed several ports and oil installations in the country’s eastern section and was nearing the rebel-held city of Benghazi.
With more than a million barrels per day out of its 1.6 million bpd oil output estimated to have been shut due to the insurgency, the latest pro-Gaddafi advances caused traders to weigh whether Libya could restore full production soon or if outages would persist in the long term.
In addition, traders eyed news that the United States, France and Britain had urged the U.N. Security Council to take speedy action on a proposed no-fly zone over OPEC member Libya, as Washington suggested it might have decided to back the plan.
Reporting by Gene Ramos, Robert Gibbons and Matthew Robinson in New York; Jessica Donati in London; Alejandro Barbajosa in Singapore; Editing by Marguerita Choy