SINGAPORE: Brent crude stayed above $110 as Iran's escalating tensions with the West and a pact by euro zone ministers to ramp up the firepower of their bailout fund helped prices to hold on to the previous session's gains.
But the positive outcome of Tuesday's meeting of euro zone ministers was negated by a failure to provide concrete details of how much the bailout fund would be boosted and Europe's likelihood of turning to the IMF for help.
"It's interesting to note how little reaction we have seen, both in Brent and the spread between the two, to potential further disruptions in the Middle East, particularly with the Iranian invasion of the British embassy," said Michael McCarthy, chief markets strategist at CMC Markets.
"It looks as if there will be political repercussions from that, but the oil market does not seem to have reacted much."
This could be due to prospects of slowing global growth that would affect oil demand, he added.
Standard & Poor's cut in credit ratings of 15 big banking companies, mostly in Europe and the United States, on Tuesday as the result of a sweeping overhaul of its ratings criteria, reflected weaker economic times ahead.
Brent crude fell 12 cents to $110.70 by 0555 GMT, after revisiting the previous session's top of $111, which was its highest level in about two weeks. US crude fell 24 cents to $99.56 a barrel. It had risen $1.58 on Tuesday to settle at $99.79 a barrel.
US crude prices were weighed down by data showing inventories had risen 3.4 million barrels in the week to Nov. 25, compared with analysts' expectations for a 200,000-barrel fall, traders said.
"Overall sentiment in the market remains bullish, even though oil futures edged down this morning," said Victor Shum of energy consulting firm Purvin & Gertz.
"Concerns over the euro zone debt crisis persist, but the governments of the various key euro zone members are slowly getting their act together to manage the crisis," he added.
Prices are likely to remain firm due to fears about supply disruptions due to unrest in the Middle East, traders said.
Protesters from Iran -- the world's fifth largest oil exporter -- stormed two British diplomatic compounds in Tehran on Tuesday in protest against new sanctions imposed by London.
In Syria, pressure is mounting on President Bashar al-Assad, with growing foreign condemnation of his repression of the Syrian uprising and attacks by armed rebels that his forces appear unable to stamp out.
"We are seeing the tensions in the Middle East bubbling again, not just with Iran but also growing trouble in Syria. Although Syria is not a major oil exporter, it is all about unrest in the Middle East," Shum added.
SUDAN'S LOST BARRELS
Crude prices were also supported by Sudan's decision to halt oil exports from Southern Sudan over a transit fee row. The South's oil minister said on Tuesday the spat would hurt both countries' oil interests.
South Sudan seceded from Sudan on July 9, taking about three-quarters of the formerly united country's roughly 500,000 barrels per day (bpd) of oil output.
China, the world's second largest oil consumer, is a major buyer from both countries and has urged them to resolve the dispute.
"We know stocks of crude are tight, and therefore physical disruptions tend to have a greater weight than potential disruptions," J P Morgan said in a daily note which highlighted that Sudan, and not Iran, was supporting the Brent structure.
The volume of halted exports from South Sudan is reported as 200,000 barrels per day (bpd), with a further 150,000 bpd of joint venture production not directly affected, it added.
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