A trader works with telephone receivers in the crude oil and natural gas options pit on the floor of the New York Mercantile Exchange in New York, April 5, 2011.

(Reuters) – Oil prices hit fresh peaks on Wednesday, rising to their highest since August 2008, buoyed by unrest in the Middle East and North Africa and dollar weakness ahead of an expected European Central Bank interest rate rise.

Brent crude rose $1 to breach $123 a barrel, its highest since August 2008, and U.S. crude rose to its highest since September 2008 above $109.

Both contracts pared gains later in the day after a U.S. oil data release, trading mostly flat versus Tuesday’s close.

The ECB is expected to raise interest rates by 0.25 percent on Thursday in the first hike since the 2008 financial crisis. The expectations have propelled the euro to a 14-month high while the dollar index .DXY was down 0.34 percent at 1450 GMT.

“Central bankers will always claim that they have no influence on oil prices but recent history has repetitively shown that in the new world, where commodities are a global asset, central bankers can have a greater influence on oil prices than OPEC,” said Olivier Jakob from Petromatrix.

Members of the Organization of the Petroleum Exporting Countries said on Wednesday they could do little to control prices driven by speculators betting on “worst case scenarios” and said the market had all the oil it needed.

The rally in the euro took place even though Moody’s rating agency cut several Portuguese banks and the country paid higher costs at a T-bill auction.

Analysts said a return of risk appetite amid expectations of strong recovery in the United States had outweighed yet another increase in China’s interest rates on Tuesday, the fourth since October, to tame inflation.

“Tightening measures have been in place since H2 2010 without any noticeable drag on oil demand,” said James Crandell from Barclays Capital. “Indeed, Chinese oil demand strength of late has been herculean, up 10 percent year-on-year,” he added.

CHINA RAISES PRICES

Also on Wednesday, China raised retail gasoline and diesel prices by 5.0-5.5 percent but the country’s battle with inflation prompted analysts to suggest the government may refrain from announcing bigger rises.

A Reuters poll showed on Wednesday China was expected to raise interest rates only once more this year as it is heading for a pause in its cycle of monetary tightening.

Singapore-based Serene Lim of ANZ said the impact from the hike would be mitigated by the turmoil in Libya.

“It is a stalemate in Libya and this will give support to oil prices, which are trading at a very tight range,” she said.

In Libya, the head of the rebel army said NATO had been too slow to order air strikes to protect civilians.

In Bahrain, firms have fired hundreds of mostly Shi’ite Muslim workers who went on strike to support pro-democracy protesters, an opposition group said on Tuesday, in what appeared to be part of a government crackdown.

U.S. Energy Information Administration data was in line with expectations showing oil stocks rose slightly more than forecast and gasoline stocks fell slightly less than forecast.

“It is hardly surprising that U.S. oil is not able to keep up with the latest rally and is even tending a little softer,” analysts at Commerzbank said in a note.

“This is because the tensions in North Africa are largely behind the rise in prices while the supply situation in the U.S. essentially remains relaxed.”

Technical analysis showed Brent could rise above $126, said Reuters analyst Wang Tao.

Brent’s rally to above $120 a barrel could soon fizzle out, according to a majority of traders and analysts in a Reuters poll released on Wednesday. But they expected Brent to roar back above $130 in the second half of this year.

Chinese Officials say the drill will help test operational readiness

GNN – The People’s Liberation Army Navy (PLAN) announced yesterday plans for a live-fire submarine warfare exercise later this week, which a government spokesperson called a “drill to test operational readiness.”

The short notice of the announcement—which occurred only two days before the exercises will commence—has raised eyebrows internationally. Normally, these sorts of exercises are announced weeks or even months in advance, in order to avoid potential misunderstandings.

“The purpose of a drill is to see how our forces can react on short notice,” the spokesman said, defending the action. “If we announced this drill months in advance, how could we really test the reaction times of our personnel? They can read a newspaper just as well as anyone.”

In Taipei, the Taiwanese government has reacted negatively to the announcement. The exercise, which will take place in the Straits of Taiwan, as well as the South China Sea and parts of the East China Sea, will completely surround the island of Taiwan, although all exercises are slated to take place several miles outside Taiwanese waters, despite the fact that Beijing views Taiwan as a breakaway province.

“To demonstrate that this exercises is purely peaceful,” the PLAN spokesman said, “we will ensure that all exercises take place well outside the waters immediately close to the shore of Taiwan. We do this to avoid any misunderstandings.”

The State Department gave no official reaction to the announcement. The Secretary of Defense refused questions from reporters on the situation; however, a top defense official confirmed that the Defense Department would we watching the exercises “with real interest.”

Soldiers loyal to Ivory Coast presidential claimant Alassane Ouattara gather at the roadside in the main city Abidjan, April 6, 2011

(Reuters) – Forces loyal to Ivory Coast presidential claimant Alassane Ouattara launched a heavy attack on Wednesday on the bunker where Laurent Gbagbo is holed up but appeared to have been repelled, a Western military source said.

Fighting raged for a third straight day in the economic capital Abidjan as Ouattara’s forces tried to unseat Gbagbo, who has refused to cede power after losing a November election to Ouattara, according to U.N.-certified results.

The source, who lives near Gbagbo’s heavily defended residence in Abidjan, said fighting had died down in the afternoon and Ouattara’s forces had regrouped.

“As I understand it, they tried to take Gbagbo residence this morning. The assault failed,” said the source, speaking on condition of anonymity.

“They could not break through the resistance from all the heavy weapons still hidden around Gbagbo’s residence. They pulled back to rethink and replan.”

A spokeswoman for Ouattara denied that his forces had retreated but could not provide any details about the ongoing assault and could not say whether fighting continued.

Residents had earlier reported gunfire from heavy weapons around the residence, which is guarded by youth militias and Gbagbo’s presidential guard.

“The fighting is terrible here, the explosions are so heavy my building is shaking,” resident Alfred Kouassi told Reuters.

“We can hear automatic gunfire and also the thud of heavy weapons. There’s shooting all over the place. Cars are speeding in all directions and so are the fighters,” he said.

He could see French tanks in the street but did not know whether they were taking part in the offensive.

The French military said their troops were not involved in the attack, unlike earlier in the week when French and U.N. helicopter airstrikes backed the rebels’ advance into Abidjan.

The fighting resumed early on Wednesday after negotiations led by the United Nations and France to secure Gbagbo’s departure failed, French Foreign Minister Alain Juppe said.

“The negotiations which were carried out for hours yesterday between the entourage of Laurent Gbagbo and Ivorian authorities have failed because of Gbagbo’s intransigence,” Juppe told parliament in Paris.

He had earlier said Gbagbo had “no future” and that it was “absurd” for him to hang on.

The former colonial power in Ivory Coast, France has taken a leading role in talks to persuade Gbagbo to hand over to Ouattara and end a four-month standoff over the contested election in November.

CIVILIANS HUNT FOR FOOD, WATER

Ouattara’s forces had earlier tried to storm Gbagbo’s residence, but locals said Gbagbo’s militiamen put up a stiff resistance, even as most soldiers from the regular army had heeded a call to lay down their arms.

Despite the fighting, desperate civilians in the north of the city ventured outside to hunt for water and food.

“We haven’t slept, we haven’t eaten, we’ve had nothing to drink. We are all going to die,” said 17-year-old Mariam.

Gbagbo has ruled Ivory Coast since 2000. Negotiations to persuade him to quit stalled after he resisted international pressure to sign a document renouncing his claim to power.

“If Gbagbo has refused to sign the documents they (U.N. and France) presented to him yesterday, it is because they proposed something that had no legal and judicial basis,” Gbagbo’s spokesman Ahoua Don Mello told Reuters on Wednesday.

He later said that Gbagbo wanted a ceasefire and direct talks with his rival Ouattara. “France and the U.N. want Gbagbo to leave first, but that’s not possible. The solution can only be political, not military,” he said.

A defiant Gbagbo, who has refused to recognize Ouattara’s victory in the November presidential polls, had earlier denied reports he was ready to surrender.

“We are not at the negotiating stage. And my departure from where? To go where?” Gbagbo told French radio RFI on Wednesday.

Gbagbo had told French television channel LCI his army had only called for a ceasefire after its weaponry was destroyed by French and U.N. air strikes on Monday.

“I’m not a kamikaze. I love life. My voice is not the voice of a martyr, no, no, no, I’m not looking for death. It’s not my aim to die,” Gbagbo, told the channel by telephone.

“For peace to return to Ivory Coast, I and Ouattara, the two of us have to talk,” he added.

Ouattara’s forces were ordered not to kill Gbagbo.

“Alassane Ouattara has given formal instructions that Gbagbo is to be kept alive because we want to bring him to justice,” Ouattara spokesman Patrick Achi told Reuters.

GBAGBO’S CAMP SLAMS FRANCE

France’s intervention in its former colony has infuriated Gbagbo, who blames Paris for supporting the north of the country in the civil war of 2002-03, and it comes at a tense time for French diplomacy after President Nicolas Sarkozy’s spearheading of the West’s military response to the crisis in Libya.

“We accuse France of seeking to assassinate president Gbagbo,” said Gbagbo’s spokesman in Paris, Toussaint Alain.

Last year’s long-delayed election in the world’s top cocoa producing nation was meant to draw a line under the civil war, but Gbagbo’s refusal to give up power has plunged the country into violence that has killed more than 1,500 people.

The International Criminal Court prosecutor said on Tuesday he was in talks with West African states about referring alleged atrocities in the Ivory Coast to the court after a reported massacre in the west of the country.

Cocoa prices were little changed on Wednesday as traders were confident that Gbagbo’s expected exit would allow a swift resumption of exports. The country’s defaulted $2.3 billion Eurobond rose to a fresh four-month high on Wednesday on raised expectations of repayment.