UPDATE 8-Oil soars on Libya violence, WTI shorts cover

* Oil prices surge on Libyan unrest, protests in region

* Tribal leader threatens to halt oil exports

* Wintershall shutting down 100,000 bpd of output

* OPEC officials say markets remain well-supplied

* US crude leads gains as blown-out Brent/WTI corrects
(Updates prices in paragraphs 7-11, adds Saudi quote in
paragraph 22)

LONDON/NEW YORK, Feb 21 (Reuters) - Brent crude oil prices
hit $108 a barrel for the first time since 2008 on Monday on
fears that spiraling violence in Libya could lead to wider
supply disruptions from the OPEC member.

U.S. oil prices led the rally to jump by more than $5, the
most in over two years, as traders also rushed to cover short
positions in the key Brent/WTI spread, which had blown out to
a record $16 a barrel. The April spread narrowed to $10 during
the day, but widened to over $12 in after-hours trade.

The focus was on deadly clashes in Libya, where one oil
firm was shutting down some 100,000 barrels per day (bpd) of
production and others evacuated staff. The leader of the
Al-Zuwayya tribe threatened oil exports to the West would be
cut off unless authorities stopped violence. [ID:nLDE71J0PP]

"The market is on edge about the potential for Middle East
and North Africa supply disruptions," said Mike Wittner, head
of commodities research, Americas, at Societe Generale.

"If you've got reports that actual disruptions are
starting to occur, it's going to have a supportive impact. A
lot of it is high-quality crude and that is important as
well."

The increasingly violent protests that appeared to put
Muammar Gaddafi's four decades of rule in jeopardy were the
realization of weeks of mounting concerns that Egypt-inspired
unrest would seep into nearby oil producers.

Brent oil futures LCOc1, which have climbed more than
$10 this year largely due to the increasing geopolitical risk
premium, jumped $3.22 a barrel, or 3.2 percent, to settle at
$105.74 a barrel. They jumped another $2 to trade as high as
$108 in after-hours dealing, the highest since Sept. 4, 2008.

The March U.S. crude oil contract CLc1, which expires on
Tuesday, surged $5.22 a barrel to trade at $91.42 a barrel in
late-afternoon activity -- the highest in two weeks.

Overall trading volume was less than one-third the 30-day
average due to the U.S. Presidents Day holiday, and the U.S.
market won't issue an official settlement until Tuesday.

The more-active April contract CLc2 jumped as much as
$5.75 to a high of $95.47 a barrel, at one point narrowing the
Brent/WTI CL-LCO1=R contract by nearly $3 to $10 a barrel as
traders covered short positions built up as the spread
ballooned from about $3 in January to a low of $16 last week.

Brent's after-hours rally forced the spread back out to
$12.40 a barrel.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For stories about regional unrest: [ID:nLDE71F0BK]
For a factbox on Libyan oil and gas: [ID:nLDE71K0RV]
For a column on the Brent/WTI spread: [ID:nLDE71K1FB]
For Libyan oil map: r.reuters.com/jem28r
Interactive factbox link.reuters.com/puk87r
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

LIBYA UNSETTLES

In Libya, scores were killed in anti-government protests
as one of the region's bloodiest revolts hit Tripoli for the
first time, while army units defected to the opposition and
Gaddafi's son vowed to fight to the last man standing.
[ID:nLDE71K01F]

On Sunday, Shaikh Faraj al Zuway, the leader of the
Al-Zuwayya tribe in eastern Libya, told Al Jazeera: "We will
stop oil exports to Western countries within 24 hours" should
the violence not stop. [ID:nLDE71JOPP]

Ninety percent of Libyan oil exports come from the eastern
region of Cyrenaica, epicenter of the revolt, and unrest there
could pose a graver threat to oil supplies than in other
nations if separatists target infrastructure and look for a
bigger slice of revenues, analysts say. [ID:nLDE71K1EH]

"Libya is a significant producer and exporter of good
quality crude oil, and threats by the tribal leader to stop
production are worrisome," said Christophe Barret, an oil
analyst at Credit Agricole Corporate and Investment Bank.

Wintershall, the oil and gas exploration arm of BASF AG
BASF.DE, said on Monday it was winding down Libyan oil
production of as much as 100,000 barrels per day (bpd), about
6 percent of output in Africa's No. 3 producer.
[ID:nLDE71K116]

Other companies, including Royal Dutch Shell Plc (RDSa.L: Quote),
ENI (ENI.MI: Quote) and OMV (OMVV.VI: Quote) said production was proceeding
normally, but they were withdrawing expatriate staff. The
United States has ordered all nonemergency personnel to leave
Libya.

OPEC IN FOCUS

A wave of popular unrest in North Africa and the Middle
East has already toppled long-time leaders in Tunisia and
Egypt, and traders are watching events carefully in other
members of the Organization of the Petroleum Exporting
Countries (OPEC) for signs of escalating tension.

While protests continued in Bahrain and Yemen, the greater
fear was that discontent among majority Shi'ites in Bahrain
who are protesting against the Sunni government might spread
to Saudi Arabia's own Shi'ite minority -- who mostly live in
the eastern province, the source of the kingdom's oil wealth.

"The biggest concern is current contagion spreading to
Saudi Arabia," said Michael Hewson, a market analyst at CMC
Markets, adding that "markets hate uncertainty and will act
first, think later."

The turmoil is complicating OPEC's effort to maintain a
stable oil price, with ministers gathering for a
producer-consumer conference in Riyadh seeking to keep the
focus on fundamentals rather than geopolitical risk.

"We're much more focused on how the market balance is --
is it sufficiently supplied? And the answer is 'yes,
abundantly.' Therefore, does the situation warrant any kind of
intervention? I don't think so," said Deputy Saudi Oil
Minister Prince Abdulaziz bin Salman Al-Saud.

He also reiterated the long-held Saudi view that $70 to
$80 was the fair price for oil. [ID:nLDE71K2D5]
(Reporting by Jessica Donati and Jonathan Leff; Editing by
Anthony Barker, Gerald E. McCormick and Jan Paschal)