Brent crude steadied near $109 a barrel today on growing optimism that Greece will be able to push through an austerity package, avoiding contagion in Europe.
US crude held near $93 after industry data showed tighter supply in the world's largest oil consumer.
ICE Brent crude for August rose 1 cent to $108.79 a barrel by 0553 GMT while US August crude was up 19 cents to $93.07 a barrel, after both contracts rose more than 2 per cent yesterday.
"Any positive compromise within Europe, with Greece willing to make some sacrifices, will cause the euro and oil to rally," said Jeremy Friesen, a commodity strategist at Société Génerale.
Growing market confidence that the Greek parliament will approve the austerity programme, and that a French plan to rollover Greek sovereign bonds will help avert a default, lifted Asian stocks and the euro.
Greek politicians will vote today and tomorrow on a five-year package of spending cuts, tax increases and privatisation in order to secure the next €12 billion slice of aid in July.
Brent's premium to US light sweet crude narrowed to around $15 a barrel after rising above $17 yesterday.
"Investors are taking profits after big gains last night," Tetsu Emori, commodities fund manager at Astmax Investments in Tokyo said, adding that once Brent breaks short-term resistance at $110 a barrel, $115 should be easy to reach.
Oil also gained support after industry data showed a larger-than-expected drop in crude stocks and a surprise fall in gasoline inventories.
Investors are looking to government data due later today for confirmation that oil supply is tightening in the United States.
Arlene, the first tropical storm of the North Atlantic hurricane season, churned through the southwestern Gulf of Mexico yesterday, but looked set to spare Mexico's oilfields from a direct hit.
There were still concerns about the release of emergency stocks from consumer countries that caused oil to tumble 7 percent last week.
"There is still some heaviness in the market in relation to the increase in supply from strategic reserves," Société Génerale's Friesen said.
"The increase in reserves is mostly coming from the United States, which is the most oversupplied market in the world right now."
The country is expected to move away from global fundamentals, where supply is expected to tighten in the second half of the year on strong demand, he said.
Reuters
