LONDON: Brent oil held above $112 per barrel on Tuesday as investors took heart from upbeat manufacturing data in China while ongoing tensions in Iraq and Ukraine underpinned supply concerns.
China's factory growth rose to a six-month high, adding to signs the economy of the world's second-biggest oil consumer is regaining strength.
Oil markets have for weeks been rattled by supply concerns due to the Ukraine crisis and as a takeover of large areas of Iraq by Sunni militants stoked fears of disruption in exports from OPEC's second-biggest producer.
Brent crude gained 4 cents to $112.40 a barrel by 0925 GMT, after ending down 94 cents at its lowest settlement since the rally spurred by the Iraqi crisis started on June 12. U.S. oil was up 39 cents to $105.76 a barrel.
"Oil is up today with some positive data out of China. Geopolitical concerns will continue to underpin it and we will remain in a fairly elevated range in the near future," CMC Markets analyst Michael Hewson said.
"Iraq has stabilised for now but we are by no means out of the woods and it remains a very fluid situation," he said, adding that the prospects of sanctions against oil producer Russia over the Ukrainian crisis remain high.
"Brent will need to get below $111 a barrel to suggest political risk is subsiding," according to Hewson.
Newly elected Iraqi lawmakers are meeting on Tuesday, under pressure to name a unity government to keep the country from splitting apart after an onslaught by Sunni Islamists who have declared a "caliphate" to rule over all the world's Muslims.
In Ukraine, President Petro Poroshenko said government forces would renew offensive operations against rebels and "free our lands", hours after a ceasefire to allow for peace talks with the pro-Russian separatists had expired.
U.S. STOCKS DRAW
Oil, particularly the U.S. benchmark, drew additional support from forecasts U.S. crude inventories dropped 2.3 million barrels last week, a preliminary Reuters poll showed. It estimated distillate stockpiles rose 600,000 barrels, with gasoline inventories increasing 800,000 barrels.
The survey was taken ahead of weekly inventory reports from industry group the American Petroleum Institute (API) and from the Energy's Energy Information Administration (EIA).
A slide in OPEC's output also supported prices. The producer group's output fell in June from May's three-month high, a Reuters survey found, as fighting in Iraq closed its largest refinery and technical problems slowed its southern exports, underlining how unrest and outages in the Middle East and Africa are taking their toll on OPEC supply.
A Reuters monthly poll of 26 analysts forecast Brent crude oil would average $108.00 a barrel in 2014, the highest average forecast of a Reuters poll so far this year and well above the $105.90 average projected in last month's poll.
The North Sea benchmark has averaged $108.72 this year, little changed from the average last year. U.S. crude, would average $100.40 in 2014, above the $98.05 average in 2013. WTI has averaged $100.72 this year.
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