LONDON: Brent crude steadied above $107 a barrel on Wednesday as a stronger dollar and weak demand offset threats to supplies from oil-producing regions.
The European Union threatened Russia with harsher sanctions on Tuesday after the downing of the Malaysian airliner in Ukraine, straining the EU's relationship with the world's second-largest oil exporter.
"When the U.S. and the EU impose more sanctions on Russia, that will impact the mid-term production profile of the Russian oil industry," said Andy Sommer, senior oil analyst at Axpo Trading in Dietikon, Switzerland.
Brent crude for September delivery was up 7 cents to $107.40 a barrel by 0938 GMT, after slipping 35 cents in the previous session. U.S. crude for September delivery was 20 cents lower at $102.19 a barrel.
U.S. crude's discount to Brent was $5.21, close to a three-month low as traders waited for U.S. government oil stock data on Wednesday.
The euro slipped to an 8-month low against the dollar on diverging interest rate outlooks for the United States and euro zone and with fears that further sanctions on Russia could damage the euro zone economy.
A stronger dollar tends to weigh on commodities priced in the greenback as it makes them more expensive for holders of other currencies.
In Libya, oil production fell to around 450,000 barrels per day (bpd), a drop of nearly 20 percent, with escalating violence threatening a hard-won deal to restore oil exports.
The OPEC country's exports could increase, however, with the Brega oil port expected to be operating in a "few days" after the government reached a deal with protesting security guards.
Traders were also monitoring fighting in the Gaza strip on Wednesday, as diplomats seek to secure a ceasefire.
Top U.S. and United Nations diplomats are seeking talks on halting the fighting that has claimed more than 600 lives.
U.S. EIA DATA
Energy traders will focus their attention on the weekly crude oil inventory report from the U.S. Energy Information Administration (EIA) due at 1430 GMT. Stocks are expected to have declined by 2.8 million barrels in the week to July 18, according to a Reuters survey.
Domestic crude stocks fell by 7.5 million barrels the previous week in their biggest drawdown since January reflecting a sharp increase in refinery activity.
Industry group the American Petroleum Institute (API) said on Tuesday that U.S. crude inventories fell 555,000 barrels last week to 374.7 million, with stocks at Cushing, Oklahoma, delivery point of the U.S. crude contract, down 1.4 million barrels.
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