SINGAPORE, July 3 (Reuters) - U.S. oil surged past the $100-per-barrel mark to hit a 14-month high on Wednesday as traders bet on a sharp drop in crude inventories in top consumer the United States, while tensions in the Middle East also supported prices.
Fears unrest in Egypt could destabilise the Middle East and disrupt oil supplies buoyed Brent crude as well, pushing it up to a more than a one-week peak of $105.61 a barrel.
"Middle East tensions are always going to put a cushion under the price while there is some tight supply going on in the U.S.," Ben Le Brun, a markets analyst at OptionsXpress in Sydney said. "It's double positive news for crude."
U.S. oil was up $1.75 at $101.35 per barrel by 0638 GMT, after rising to as high as $102.18 earlier in the session. Brent rose 81 cents to $104.81.
Both benchmarks gained for a third consecutive day, drawing support from geopolitical tensions, but Libyan oil output fell by a third after protesters shut several oilfields.
Traders are now priming for better U.S. jobs data due on Friday, said Yusuke Seta, a commodity sales manager at Newedge Japan. Technical charts point to higher oil prices after U.S. crude futures rose more than expected, breaking several resistance levels, he said.
"Investors are taking more risks and are getting ready for Friday's non-farm payroll," he said, adding that traders were snapping up oil ahead of a U.S. market holiday on Thursday.
Brent's premium to West Texas Intermediate crude CL-LCO1=R hit a low of $3.09, weakest since December 2010. The spread may narrow further on a drop in U.S. inventories.
U.S. crude inventories fell by 9.4 million barrels in the week through June 28, the American Petroleum Institute said late on Tuesday. Analysts had been expecting a drawdown of 2.3 million barrels, according to a Reuters poll.
Investors will be looking to verify this data with statistics from the U.S. Department of Energy's Energy Information Administration (EIA) due later on Wednesday.
Projects aimed at moving crude from the over-supplied distribution hub of Cushing, Oklahoma, to refineries in the Gulf Coast will reduce the cost of transporting crude to refiners and help close the price gap between Brent and WTI, analysts at the National Australian Bank said in a note.
But a slew of weak data from China, which has stoked worries about the outlook for demand from the world's No.2 oil consumer, may keep a lid on prices.
A survey showed that growth in China's services sector sagged to its weakest pace in nine months in June. This comes on the heels of two surveys that showed China's manufacturing growth plumbed multi-month lows in June as foreign and domestic demand waned.
"Recent indicators have pointed to a slowing Chinese economy, driven by softer industrial and export performance, and these should result in lower oil import growth," NAB analysts said.
Reuters market analyst Wang Tao said a bullish target of $102.82 per barrel has been established for U.S. crude, as it has climbed above a resistance at $100.09.
