Oil above $110 on Ukraine, Libya supply worries

Bareksa.com  - Brent crude oil steadied above $110 a barrel on Tuesday on supply worries as the Ukraine government launched air strikes to try to put down a separatist revolt and Libya struggled to rein in rebels controlling several of the country's oil ports.

A pro-Russian rebel said on Tuesday up to 35 separatists had been killed in fighting with Ukrainian forces in Donetsk after the Kiev government launched air strikes and a paratrooper assault against rebels who seized an airport.

Ukraine is a main gas supply route to Europe from Russia and investors are concerned the conflict could also disrupt Russian oil supplies to the West.

Chaos in Libya, meanwhile, has cut the country's oil output to just 160,000 barrels per day (bpd) compared with 1.4 million bpd before the civil war began three years ago.

Brent was down 10 cents at $110.22 a barrel by 0745 GMT, not far below the high for the year of $112.39. U.S. oil was down 15 cents at $104.20.

"The market is worried about what is happening in Ukraine, where the crisis appears to escalating, and the muddy supply picture in Libya is also underpinning prices," said Carsten Fritsch, senior oil and commodities analyst at Commerzbank.

Heightened political risks have helped Brent gain more than 6 percent since this year's low of $103.95 in early April.

Ukraine launched a major assault against pro-Russian rebels who seized an airport on Monday, as its newly elected leader rejected any talks with "terrorists" and said a robust military campaign in the east should be able to put down a separatist revolt in "a matter of hours".

"News of the newly elected Ukrainian president was welcomed by the West although with most of conflict ridden eastern Ukraine not voting at the elections, the potential for further conflict remains," analysts at ANZ said in a note.

In Libya, the leader of protesters occupying the country's oil ports said he did not recognise Prime Minister Ahmed Maiteeq's new government and indicated a previously agreed deal to end his blockade could be in jeopardy.

Oil, particularly Brent, also drew support from demand growth hopes amid expectations that the European Central Bank (ECB) is preparing a package of policy options to offer some stimulus for the euro zone economy.

Investors were watching progress of talks between Iran and world powers to find a solution to Tehran's nuclear programme.

Iran said world powers were demanding too much in talks aimed at reaching a deal by July 20, but hurdles could be overcome. Foreign Minister Mohammad Javad Zarif said a compromise was possible despite difficulties.

Investors also awaited a slew of economic indicators from the United States and Europe to gauge the demand outlook for oil and assess the benchmarks' price direction.

U.S. durable goods orders, consumer confidence and the Dallas Fed manufacturing index are due on Tuesday.( Source : Reuters)