Oil steadies above $112 on supply fears

LONDON: Brent crude oil steadied above $112 a barrel on Wednesday as fighting in Iraq heightened concerns over the country's oil production, but rebels in Libya said they would reopen two oil terminals, increasing supply.

Brent was down 10 cents a barrel at $112.19 by 0830 GMT. U.S. light crude oil added 5 cents to $105.39.

The North Sea crude oil benchmark hit a nine-month intraday high of $115.71 two weeks ago on worries that a insurgency in northern Iraq would hit the country's oil output and exports.

But prices have slipped back steadily since then as the oil facilities, mostly in southern Iraq, hundreds of miles from the fighting, have continued in operation. Iraq is OPEC's second biggest producer and exporter and pumped 3 million barrels per day (bpd) last month, a Reuters survey showed.

Analysts have even suggested that Iraq's southern oil exports, which recently hit a record high around 2.6 million barrels per day (bpd), could increase further.

"There haven't been many reported attacks in the south over the past few months," said Jessica Watkins, Middle East analyst at the Risk Advisory Group in London.

Meanwhile, Libyan rebels blockading eastern oil ports have agreed to reopen the remaining two terminals at Es Sider and Ras Lanuf. The port seizures have crippled Libya's oil industry since last summer.

If fulfilled, the deal would bring back around 500,000 barrels per day (bpd) of crude oil export capacity.

Oil prices have been supported by worries over limited spare capacity to make up for any major loss in shipments.

Oil producers would struggle to cover another big oil supply outage, industry officials say, increasing the chance governments may tap strategic reserves if Iraq's southern exports were disrupted.

U.S. crude stocks fell by 876,000 barrels in the week to June 27 to 381.7 million, compared with expectations for a decrease of 2.2 million barrels, data from industry group the American Petroleum Institute showed on Tuesday.

Gasoline stocks dropped by 407,000 barrels versus forecasts of a 400,000-barrel gain. Distillate fuels stockpiles, which include diesel and heating oil, rose by 4.4 million barrels, against expectations of a 800,000-barrel gain, it said.

Investors are awaiting official data from the Energy Information Administration (EIA) due on Wednesday to gauge the country's demand outlook.