Brent crude was steady near $116 after rising as much as 0.6 percent on Wednesday as intensifying unrest in Yemen highlighted the security risks facing oil output from the Arabian peninsula, home to the world's biggest oil fields.

Yemen's president said his country would descend into civil war if he were forced to quit and Washington voiced concern about instability in the Arab state, which Al Qaeda has already used to attempt attacks in Saudi Arabia.

May Brent rose 14 cents to $115.84 a barrel at 0320 GMT, after earlier climbing as much as 70 cents to $116.40 a barrel, less than $4 from a 2-1/2-year high of almost $120 reached last month. U.S. crude for May, the front month after April expired on Tuesday, shed 6 cents to $104.91.

The market is still very vulnerable to further disruptions to supply, said Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investments. People are quite nervous about the current turmoil spreading to Saudi Arabia.

Thousands of Yemeni protesters took to the streets on Tuesday, clamoring for President Ali Abdullah Saleh to step down. Several top officials have already defected to the opposition.

Yemen, a crude-exporting country, lies at the southern end of the Red Sea, along which runs a key shipping lane for oil trade between the Mideast Gulf and Europe.

The neighboring Saudi kingdom is the only OPEC member nation with enough spare capacity to compensate for further disruptions to output from medium-sized producers like Libya, where exports have come to a virtual standstill in the midst of the country's civil war.

Western powers pounding Libya's defenses will wind up in the dustbin of history, said leader Muammar Gaddafi as his troops held back rebel advances despite four nights of attacks from the air.

Before the strikes Libya's oil output was already reduced to less than a quarter of the previous 1.6 million barrels per day, nearly paralyzing shipments abroad from what used to be the world's 12th largest crude exporter.

Western nations waging the air campaign in Libya agreed on Tuesday to use NATO to drive the military effort but lack the backing of all alliance members and remain divided on the mission's leadership.

Oil markets were also keeping an eye on developments in Japan, where engineers continued their struggle to cool reactors at a tsunami-smashed nuclear plant.

People believe that oil demand in Japan is coming back after going down with the earthquake, Emori said. With the nuclear plant destroyed, oil should be necessary to supply power generators.

Japan will allow the release of an additional 22 days' worth of oil from privately held reserves, its trade ministry said, in a bid to ease energy shortages in parts of the country devastated by the earthquake and tsunami.

U.S. INVENTORY

In a report late on Tuesday, the American Petroleum Institute (API) reported that U.S. crude inventories rose less than expected last week and gasoline stocks posted a huge drop, despite a jump in both crude and product imports and a small increase in refinery run rates.

Government data on inventories from the Energy Information Administration follows on Wednesday.

U.S. crude stockpiles probably gained 1.6 million barrels in the week to March 18 on average, following seasonal tendencies, a Reuters poll of analysts showed.

(Editing by Himani Sarkar)

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