Brent oil prices climb as Egypt unrest stokes supply fears

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Brent crude prices climbed towards $111 per barrel on Thursday, extending gains from the previous session on a drop in U.S. oil inventories and worries over supplies from the Middle East and North Africa.

As a state of emergency was declared by the Egyptian government following deadly clashes between riot police and supporters of ousted President Mohamed Mursi, investors feared that unrest could choke key supply routes such as the Suez Canalor spill over into key oil producing nations.

"Egypt may not be a major oil producer but the Suez Canal is an important gateway not just for oil flows but also for commodities. If there is any disruption or if the violence results in the shutting down of the canal, the impact will be quite severe," said Carl Larry, president of Houston-based consultancy Oil Outlook and Opinions.

"It's like dominoes - if Egypt falls you're going to have [to] ask yourself 'where next?'"

Front-month September Brent, which expires on Thursday, was up 38 cents at $110.58 a barrel at 0425 GMT, while U.S. oil rose 40 cents to $107.25.

"If the demand outlook is positive, then obviously any threat to supply or actual disruptions are going to give oil prices a big upside," Larry said, adding that recent economic data had brightened the prospects for oil demand in the United States, China and Europe.

Egypt's Suez Canal and ports were operating normally despite the unrest gripping the country, shipping sources said on Wednesday.

In OPEC nation Libya, the deputy oil minister said that production had fallen to 600,000 barrels a day due to field problems, while the Ras Lanuf terminal remained shut a day afterthe state-run oil company had said it could not guarantee crude deliveries in September because of labor unrest at export terminals.

U.S. crude inventories fell 2.8 million barrels, with stocks at Cushing, Oklahoma dropping for the sixth straight week to hit their lowest level since March, 2012.

Data on Wednesday showed the economies of Germany and France grew more quickly than expected in the second quarter, pulling the euro zone out of an 18-month recession.

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