Brent oil hits 29-month high on Israel-Iran tensions-UPDATE 7

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Friday February 18, 2011 08:30:17 AM GMT

* Two Iranian war ships plan to sail to Syria -Israel

* Israel foreign minister calls move "provocation"

* U.S. crude inventories rise, Cushing higher - EIA

(Recasts, updates with EIA, background. Changes dateline to NEW YORK, previously LONDON)

NEW YORK, Feb 16 (Reuters) - Oil price surged on Wednesday after Israel's foreign ministers said two Iranian warships planned to sail through the Suez canal en route to Syria.

Foreign Minister Avigdor Lieberman called the move the latest "provocation" by Iran, which Israel sees a major threat due to the OPEC nation's nuclear program. The countries' geographical distance has kept them from open confrontation, but Syria is one of Israel's neighbouring foes and an ally of Tehran.

The news lifted Brent crude to 29-month highs and added to Middle East jitters after reports of clashes in Iran, Yemen and Bahrain, raising concerns about disruption to oil flows.

Unrest in Egypt helped push Brent crude over $100 a barrel in late January, helping send its premium to U.S. oil futures to record levels over $16 a barrel.

Brent crude rose $2.40 to $104.04 at 12:08 p.m. EST (1708 GMT), after hitting $104.52 earlier, the highest level since September 2008. U.S. crude gained $1.16 to $85.48 a barrel.

Brent's stronger gains pushed its premium to U.S. crude to $15.56 a barrel on Wednesday, as high inventory levels at the Cushing, Oklahoma, delivery point for the New York Mercantile Exchange oil futures contract weigh on U.S. prices.

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.

"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.

Crude earlier rose following the release of U.S. inventory data from the U.S. Energy Information Administration, which showed an 860,000-barrel build in crude inventories in the week to Feb. 11, below analyst expectations.

Stockpiles at Cushing rose by 250,000 barrels, while crude imports fell by 653,000 barrels per day to 8.23 million bpd. (Reporting by Robert Gibbons and Gene Ramos in New York, Jessica Donati in London and Jennifer Tan in Singapore; Editing by Lisa Shumaker)

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