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Thu 31 Mar 2011 11:30 AM

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Brent at $116, heads for biggest qtrly gain in almost 2 yrs

War, revolutions, and unrest across MENA region raise supply constraints fears

Brent at $116, heads for biggest qtrly gain in almost 2 yrs

Brent crude rose 0.8 percent to $116 on Thursday, heading
for its biggest quarterly gain in almost two years as war, revolutions, and
unrest across the Middle East and North Africa thrust supply constraints to the
forefront of investor concerns.

The global economic recovery also underpinned prices,
although Japan's worst crisis since World War II triggered a dramatic reality
check, resulting in the most turbulent and volatile quarter for the oil market
since the end of 2008.

Brent crude for May advanced 87 cents on Thursday to $116 a
barrel at 0626 GMT, less than $4 from a 2-1/2-year high near $120 on Feb. 24.
Brent plunged to below $108 in the aftermath of Japan's earthquake.

US crude climbed 61 cents to $104.88.

Going forward, traders, analysts and investors see a new
floor for prices around $100 a barrel, supported by supply risks and expanding
economies. US private employers added more than 200,000 jobs in March, a report
showed on Wednesday, ahead of government data on March non-farm payrolls due on
Friday.

"The second quarter is a good period, and oil demand
should be increasing," said Tetsu Emori, a Tokyo-based commodities fund
manager at Astmax Investments, adding that he expected US crude to end the year
close to $120.

"The world economy should be quite positive, especially
after mid-May, and the downside for crude should be quite limited because of
the geopolitical risk of disruption to supply in the Middle East and North
Africa."

US President Barack Obama has signed a secret order
authorizing covert US government support for rebel forces seeking to oust
Libyan leader Muammar Gaddafi, government officials said Wednesday.

The United States is part of a coalition, with NATO members
and some Arab states, which is conducting air strikes on Libyan government
forces under a UN mandate aimed at protecting civilians opposing Gaddafi.

Libyan Foreign Minister Moussa Koussa, one of Gaddafi's
closest advisers and a former spy chief, defected and flew to Britain on
Wednesday, a friend said.

Unrest in Libya erupted in February after revolutions
toppled the leaders of Egypt and Tunisia in January, igniting protests against
decades of autocratic rule in Syria, Yemen and Bahrain and minor demonstrations
in countries including Morocco, Jordan, Algeria and Saudi Arabia, the world's
top oil exporter.

As Saudi Arabia increased production partly to compensate
for dwindling exports from Libya, concerns resurfaced that the kingdom's spare
production capacity was shrinking, leaving world markets vulnerable to
potential bigger disruptions.

President Obama on Wednesday proposed to cut US oil imports
by a third over 10 years, a goal that eluded his predecessors and one seen as
extremely ambitious by analysts sceptical it can succeed.

Japan's nuclear disaster has raised concern that growth in
the world's third-largest economy may suffer. Japanese manufacturing activity
slumped to a two-year low in March and posted its steepest monthly decline on
record.

Workers struggling to prevent more radiation from escaping
Japan's crippled nuclear plant face a hellish scenario - with every attempt to
get it under control seemingly creating life-threatening problems.

A final resolution of the nuclear disaster at the Fukushima
Daiichi power station may take decades and experts say there could be further
setbacks, after Japan's strongest earthquake on record and an ensuing tsunami
hit the reactors on March 11.

The US economy probably recorded a second straight month of
solid job growth in March, adding 190,000 payrolls according to a Reuters
survey, proof the labor market has turned the corner after lagging the broader
economic recovery.

"There are growing expectations that number may jump
higher given the US market's recent spate of positive data releases," said
Ben Taylor, a sales trader at CMC Markets in Sydney.

"If a good number is coming out, that should be
positive for the dollar and push down commodity prices, but not very much;
market sentiment should be getting better," Astmax's Emori said.

The accelerating recovery has yet to be reflected in the US
crude inventories, which last week rose more than anticipated, government data
showed. Stockpiles at the Cushing, Oklahoma pricing point for benchmark West
Texas Intermediate (WTI) soared to a record of 41.9 million barrels.

A larger-than-expected decline in US gasoline stocks last
week initially supported prices on Wednesday. Supplies have fallen by nearly 18
million barrels in the first four weeks of March, the biggest drawdown for the
period since at least 1990.

Still, gasoline demand growth in the world's top user is not
stellar. Consumption over the past four weeks fell 0.1 percent from a year
earlier as high prices took a toll on drivers, while in January demand fell by
1.3 percent, the Energy Information Administration said on Wednesday.

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