June 26, 2012 / 6:14 AM / 5 years ago

Oil climbs towards $92; tension rises over Syria

3 Min Read

Fuel pumps are seen at a Cepsa Petroleum petrol station in Cuevas del Becerro, near Malaga, southern Spain March 4, 2011.Jon Nazca

LONDON (Reuters) - Oil climbed towards $92 per barrel on Tuesday as the prospect of a decline in U.S. crude stockpiles and rising tension over Syria offset concern about a weakening economic outlook.

NATO member states condemned Syria on Tuesday for its shooting down of a Turkish military jet last week and Ankara warned Damascus against any further military moves.

Brent crude rose 66 cents to $91.67 a barrel by 0647 EDT after reaching a session high of $92.04. U.S. crude climbed edged 5 cents higher to $79.26.

"The Turkey-Syria situation probably prompted some short covering. The market has been trending down solidly for a couple of weeks, so a bounce from the lows is not that surprising," said Tony Machacek, an oil futures broker at Jefferies Bache.

Oil prices are expected to be underpinned by forecasts for a 700,000-barrel drop in U.S. crude oil stockpiles last week and supply disruptions in Norway and Argentina due to labor strikes.

"But economically, everything still points to the downside," said Machacek.

The American Petroleum Institute will release its latest weekly inventories report at 1630 EDT.

The appetite for riskier assets is expected to stay low as the debt crisis grinds on in the euro zone, where Cyprus became the fifth country to seek emergency funding for its troubled banks.

And a two-day European Union summit in Brussels later this week will be the 20th time leaders have met to sort out a crisis that has spread across Europe since it began in Greece in early 2010. Investors doubt they will resolve the crisis this time.

Ample Oil

Brent crude oil has shed more than 25 percent from its 2012 peak above $128 reached in March as economic uncertainty has dimmed the global demand outlook at a time of ample supplies.

Higher output by OPEC, in particular Saudi Arabia, has also muted the impact of imminent sanctions on Iran oil exports.

EU governments on Monday formally approved an embargo on Iranian oil to start on July 1, dismissing calls by debt-ridden Greece for possible exemptions to help ease its economic crisis.

The impact of the EU sanctions is also being felt in Asia.

South Korea, a major consumer of Iranian crude, has called a halt to imports from July 1 due to a European Union ban on insuring tankers carrying Iranian oil.

The embargo comes as part of a series of measures designed to put pressure on Iran to halt what the United States and others say is a nuclear weapons program.

Despite OPEC's call to adhere to a production quota, top oil exporter Saudi Arabia is showing no sign of changing its policy of high output in order to support global economic growth.

Additional reporting by Florence Tan in Singapore; editing by Jason Neely; editing by Keiron Henderson

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