SINGAPORE - Brent crude reversed losses, heading back toward $111 after losing 1 percent earlier on Thursday, as investors weighed Middle East tensions against risks to demand from the nuclear crisis in quake-hit Japan.
Brent crude for May, the front-month contract after April's expiry on Wednesday, was up 15 cents at $110.75 a barrel at 0515 GMT (1:15 a.m. ET), after falling as much as $1.15 to $109.45. Prices have slid more than 4 percent since Japan's earthquake and tsunami struck six days ago, touching a three-week low of $107.35 on Wednesday.
U.S. crude for April gained 36 cents to $98.34.
Political unrest from North Africa to the Persian Gulf has roiled markets for weeks, driving Brent to almost $120. But worries about Japan, the world's third largest crude importer, since Friday's earthquake have taken pressure off prices.
Anything that causes unrest in Saudi Arabia or causes a supply side event in the Middle East will cause a sharp rebound in prices, National Australia Bank commodity economist Ben Westmore said.
But Japan continues to weigh on the market.
There is so much uncertainty in Japan and its ability to drive economic recovery that it's something that is casting a shadow on the outlook for global growth, said Westmore.
While that shadow lasts, it's going to be difficult for oil prices to go higher. With risk aversion some money has come out of the oil market, and there is some aversion because the demand outlook remains so uncertain.
Bahraini forces used tanks and helicopters to drive protesters from the streets on Wednesday clearing a camp that had become a symbol of the Shi'ite Muslim uprising and drawing rare criticism from their U.S. allies.
The violence that has transformed a crisis between the island's majority Shi'ites and minority Sunnis into a regional standoff between Sunni Gulf Arab states and non-Arab Shi'ite power Iran.
Bahrain lies less than 100 kms from the hub of the Saudi oil industry at Dhahran, including the world's largest oil fields, oil terminal and processing plant. Recent demonstrations by Saudi Shi'ites have also centered in the kingdom's Eastern Province.
In Libya, the battle for control of rebel capital Benghazi looked just hours away after the Libyan army told people to leave opposition-held locations and arms storage areas, but residents said the city was quiet.
OPEC members including Saudi Arabia have increased production partly to compensate for the loss of as much as two-thirds of Libyan supplies, at the same time eroding spare capacity.
But the effect of gloomy financial markets on oil prevailed early on Thursday. Japanese stocks slid 3 percent after a surge in the yen to a record high stoked fears that a stronger currency would compound the economic hit from a worsening nuclear crisis. <.T>
Operators of the quake-crippled nuclear plant in Japan dumped water on overheating reactors on Thursday while the United States expressed growing alarm about leaking radiation and urged its citizens to stay well clear of the area.
(Editing by Ed Lane)