LONDON: Brent crude edged towards $119 a barrel as news of a major pipeline reversal that will alleviate a large US bottleneck continued to support the US benchmark.
Brent was up 11 cents to $118.78 by 1400 GMT after reaching a low of $117.98 earlier in the day, a two-month low. On Monday, Brent slid 2.6 percent, its biggest one-day percentage loss since December.
US crude for May delivery, which expires on Friday, rose $1.71 to $104.66 a barrel, after rising by over $2 earlier in the day.
Brent remained under pressure from limited demand in the physical market, analysts said, due to seasonal refinery maintenance.
Its premium to US crude has also been eroded by the sooner-than-expected reversal of the US Seaway pipeline.
"Brent spreads have come off hard. Demand is at the weakest point of the year, so things should look weak, and they do," said Seth Kleinman, analyst at Citigroup. "Balances look better going forward, the macroeconomic climate is not terrible."
The reversal is expected to ease a supply glut in the US Midwest that has weighed on the US benchmark. Brent's premium narrowed to $14 on Tuesday, compared with $19 on Friday.
"The rise (in US crude) is 100 percent the arbitrage," said Kleinman. "The shorts are running for cover."
"The market is reacting only to the news that (Enbridge) applied for May permits is moving the US market, like any news," said Andrey Kryuchenkov, vice president of commodities research at VTB Capital, "The market knew for a while the reversal would happen."
Spanish borrowing costs jumped at a debt auction on Tuesday but the sale went smoothly and German data gave an upbeat reading of the euro zone's largest economy.
However, analysts said Spain's fiscal position would remain a worry and the most important test would come with an auction of Spanish 10-year debt on Thursday.
"A new euro zone debt crisis appears to be building," said Carsten Fritsch, analyst at Commerzbank in Frankfurt. "It could have a serious impact on commodities and the growth outlook."
Last week's news of a well supplied oil market from the IEA, OPEC and the Saudi oil minister continues to contribute to the bearish sentiment in the market.
Refiners have also been slow to return to the market with the end of maintenance season around the corner, which has been weighing on differentials, say analysts.
"Oil supplies are adequate," said Kryuchenkov, "It took reassurances from the IEA, OPEC, (Saudi oil minister) Naimi that supplies are adequate. Today, the market is trying to consolidate this news, making a logical correction."
IRAN
Oil has drawn support this year from the possible loss of Iranian oil. US Secretary of State Hilary Clinton said on Monday sanctions would be maintained on Tehran.
Even so, talks between Iran and world powers over Tehran's nuclear programme have eased tension and weighed on prices, analysts said.
Iran's foreign minister was quoted as saying his country was ready to resolve all nuclear issues if the West started lifting sanctions.
US commercial crude stockpiles were forecast to have risen last week after data showed the largest three-week build in more than three years due to higher imports, a preliminary Reuters poll showed on Monday. The American Petroleum Institute (API) is set to release its report at 2030 GMT.