Brent hits 5-week high on supply fears after OPEC

NEW YORK (Reuters) - Brent crude rose 1.5 percent on Thursday, reaching a five-week high as OPEC's surprise failure to reach a deal on raising output stoked more fears of leaner supplies later in the year.

Brent and U.S. crude rose for a third day, part of a broad commodities rally that saw the global benchmark Reuters-Jefferies CRB index .CRB rise to its highest level since the end of May.

In London, ICE Brent for July delivery settled at $119.57, gaining $1.72, the highest close since May 4.

U.S. crude closed at $101.93, up $1.19, or 1.2 percent, highest since the end of May.

"The OPEC situation actually got prices a little bit higher. I think it set a change in mentality for a lot of traders especially after we broke above the consolidation (seen in recent weeks)," Mike Zarembski, senior commodities analyst for OptionsXpress in Chicago.

A ministerial meeting of OPEC on Wednesday broke down in acrimony, but Saudi Arabia pledged that it will increase output despite the disagreement over pumping more oil,

OPEC estimates show an implied market requirement of about 2 million barrels per day more of oil for the third quarter and 1.5 million bpd for the fourth quarter this year.

In earlier trade, crude's gains were limited as the dollar rose against the euro. The currency moves came after the euro fell as the European Central Bank kept its 2012 inflation forecast unchanged, implying that the pace of euro zone interest rate increases may be slower than the previously thought.

After trimming gains, the greenback was back up 0.30 percent against a basket of currencies in late trading.

MIDEAST CONCERNS

Oil investors kept close watch of the Middle East and north Africa, in the face of continued violence in Syria and the tense situation in Yemen, where protests have mounted over reports that wounded President Ali Abdullah Saleh would return soon after medical treatment in Saudi Arabia.

At the same time, traders weighed news that Libya's rebels hoped to restart oil production soon and had gained aid pledges of more than $1.1 billion at a conference of Western and Arab powers in Abu Dhabi.

The meeting was convened to focus on what one U.S. official called the "end-game" for Libyan leader Muammar Gaddafi as NATO again stepped up the intensity of air raids on Tripoli.

Months of unrest in OPEC-member Libya had cut more than 1 million barrels per day of output from the world market.

Olivier Jakob, an analyst at Petromatrix in Zug, predicted the West will have removed Gaddafi by the end of the year, leading to an increase in spare capacity for 2012.

U.S. TRADE DATA SUPPORTIVE

Record U.S. exports in April narrowed the U.S. trade deficit, tempering fears that the economic recovery was sputtering and eased some worries about oil demand.

The trade data overshadowed a weekly report showing first-time claims for jobless benefits edged higher last week.

A 2 percent rebound in U.S. gasoline futures due to recent refinery troubles was also supportive for U.S. crude, analysts said.

The United States, the world's top oil consumer, had put pressure on Saudi Arabia to deliver a credible deal to cap crude prices and underpin slowing economic growth.

President Barack Obama is keeping open the option of using the U.S. strategic oil reserves to cover any supply gap, but no decision has been made, a White House spokesman said.

Oil prices have rallied since the start of the year on the loss of Libyan oil production because of a civil war, and were approaching 2008 peaks before falling by more than 10 percent in early May.

Since that time, competing pressures about supply and ailing global growth have kept prices in a tight range.

(Additional reporting by Robert Gibbons and Antonita Devotta in New York; Simon Falush and Randi Fabi in London; Manash Goswami in Singapore; Editing by Lisa Shumaker and Alden Bentley)