Oil near 6-month peak on supply risks, Greece eyed

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Brent oil kept gains near six-month highs on Wednesday, as fears of supply disruptions from Iran, other Middle Eastern producers and Africa outweighed worries about the global economy.

But concerns about the outcome of Greek bailout talks in Brussels among euro zone officials limited the day's rises.

A denial by Iran's oil ministry of a state media report that Tehran had banned oil exports to six European Union countries in retaliation for EU sanctions also pared gains.

Data showing a surprise drawdown in U.S. oil inventories last week, however, helped firm crude futures.

"The oil markets are doing a balancing act between what's happening in Iran and the euro zone, where the Greek bailout deal may still fall apart," said Chris Dillman, analyst at Tradition Energy in Stamford, Connecticut.

At 2:45 p.m. EST (1945 GMT), ICE April Brent crude traded in London at $118.98 a barrel, up $1.63. It climbed early to a session peak of $119.99, the highest intraday since Aug. 1, on the report that Iran was halting oil exports to some EU countries.

U.S. March crude settled at $101.80 a barrel, gaining $1.06, the highest close since Jan. 11. It hit an early peak of $102.54, the highest intraday since Jan. 12.

Brent's total crude oil volume rose 17 percent above its 30-day average, Reuters data showed. U.S. crude volume was up 1.0 percent against its 30-day average.

"Bubbling of tensions with Iran will always be supportive of the oil price, and this latest development is no different," said Harry Tchilinguirian, analyst at BNP Paribas.

U.S. crude oil inventories showed a surprise, if modest, drop of 171,000 barrels in the week to Feb. 10, defying the forecast in a Reuters poll for a 1.5 million-barrel increase and going against industry data released late on Tuesday showing a 2.9 million-barrel build.

Crude stocks held at the Cushing, Oklahoma, delivery hub for U.S.-traded crude oil futures rose to their highest level since September, posting a 2 million-barrel build, the biggest weekly increase since December 2009.

The gain in Cushing stocks helped widen Brent's premium against U.S. crude to around $16.70 a barrel. The gap had narrowed on Tuesday to $16.27. <CL-LCO1=R>

An explosion hit a pipeline in Syria on Wednesday, a strike in Yemen has halted output at its largest oilfield and Sudan seized more of South Sudan's oil in a dispute over payment.

Oil-supply risks far outweigh the effects of the euro zone's debt problems, highlighted by the still-unresolved quest of Greece to obtain a second debt bailout.

EURO ZONE WORRIES, MIXED U.S. DATA

A possible delay of parts or even all of the second international bailout for Greece while still avoiding a messy default was being discussed by euro zone officials.

The officials appeared unconvinced that Greece's political leaders were sufficiently committed to the bailout deal that requires Athens to make further spending cuts and adopt unpopular labor reforms.

This kept oil's gains in check even as investors welcomed a reiteration by China's chief central banker that his country would keep investing in euro zone debt.

U.S. economic data was mixed, with factory activity in New York state rising to its highest in 1-1/2 years this month and U.S. industrial production turning unexpectedly flat in January.

However, the United States posted its second month of gains in manufacturing last month, pointing to underlying strength in the economy.

IRAN FACTOR

Iran touted advances in nuclear know-how but at the same time sent a letter to EU's foreign policy chief expressing readiness "to hold new talks over its nuclear program in a constructive way." That sent mixed signals to the West, which fears Tehran's ultimate goal is to build atomic weapons.

Tehran has repeatedly denied that was its objective, but sanctions imposed by the U.S. against the Islamic Republic, and an action by the EU calling for a ban on Iranian oil by July 1 has prompted Iran to keep threatening to shut the vital Strait of Hormuz oil shipping lane, helping keep oil prices elevated. (Additional reporting by Robert Gibbons in New York and Alex Lawler in London; Editing by David Gregorio, Dale Hudson and Lisa Shumaker)


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