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Fri 8 Apr 2011 10:50 AM

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Oil price soars to highest level since Aug 2008

Unrest in the Arab world has added a $20-25 premium to oil prices, says Societe Generale

Oil price soars to highest level since Aug 2008

Oil climbed to its highest

level in two-and-a-half years on Friday as supply cuts stemming from

attacks on Libyan oil fields offset demand concerns spurred by a

major aftershock in Japan.

Brent crude surged to an intraday high of $123.65 a

barrel, the highest since August 2008. The front-month May

contract traded up 93 cents at $123.60 by 10.05am UAE time.

US crude rose 98 cents to $111.28, after touching a

peak of $111.39 earlier, the highest since September 2008.

Surging oil, along with record gold and food prices, have

stoked inflationary concerns for governments worldwide due to

the potential adverse impact on economic growth of the rising

cost of foodstuffs and raw materials.

"Oil prices are at a point where we could begin to see

demand destruction," said Mike Wittner, head of commodities

research at Societe Generale.

"It already looks like the United States may just be showing

some signs of demand destruction. The United States is always

the country where you see the impact the most because there are

no subsidies and hardly any tax burden."

Unrest in the Arab world has added a $20-25 premium to oil

prices since the toppling of regimes in Tunisia and Egypt in the

last few months, Wittner said.

The International Monetary Fund on Thursday said the global

economy was entering a period of scarcer oil, adding that

tighter fundamentals could cause price spikes rivaling the 2008

run-up that drove oil to nearly $150 a barrel.

In Libya, rebels and forces loyal to embattled leader

Muammar Gaddafi exchanged accusations over who had attacked oil

fields and infrastructure vital to both sides.

Rebels say government attacks on three different

installations in the east have halted production of the oil they

desperately need to finance the uprising against Gaddafi.

The seven-week old civil war has cut Libya's 1.6 million

barrels per day output by 80 percent to between 250,000 and

300,000, a senior government official said.

A tanker, Equator, sailed from the port of Marsa el-Hariga,

apparently with the first cargo of crude sold by rebels since

their uprising began in February. Oil traders said the cargo,

vital to fund the uprising, was headed for China.

"Obviously this sets a precedent, but we remain skeptical

that this will materially increase supply as resumption of

production still faces many obstacles," said J.P. Morgan in a

research note.

Fellow OPEC member Nigeria postponed parliamentary elections

again in some areas, but polls will go ahead in most of the

country on Saturday as planned.

Worries over OPEC supplies offset demand worries exacerbated

by a 7.4-magnitude earthquake that struck Japan, which is

recovering from last month's devastating quake and tsunami that

crippled a nuclear power plant and damaged some refineries.

Large parts of northern Japan were without electricity

following the latest of many aftershocks, the biggest since last

month's quake. However, there were no reports of major damage to

any energy infrastructure.

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