Brent at nearly $118 on Mideast supply fears

Brent crude held steady at nearly USD 118 on Wednesday as supply concerns in the Middle East sparked by tensions over Iran and disruptions in South Sudan trumped concerns about the health of the global economy as Greece faces the prospect of bankruptcy.

Investors are worried about oil supplies as turmoil accelerated in Syria and Iran's dispute with the West over Tehran's nuclear program persisted.

Oil markets also face fresh supply worries from South Sudan, after Sudan seized another 2.4 million barrels of crude over a continued dispute on payment issues.

Front-month April Brent crude futures were up 62 cents to USD 117.97 a barrel at 0447 GMT, tracking gains made on the March crude which settled at USD 118.28 on Tuesday, reversing losses from earlier in the day.

"The oil market continues to be caught between a deterioration in the global economy and supply issues, including actual supply disruptions in Sudan," said Jeremy Friesen, a commodity strategist at Societe Generale.

"I don't think it's realistic to expect that risks in the Middle East will disappear."

Oil output was also halted from Yemen's Masila oilfield, the country's largest, after workers went on strike over pay issues.

EUROZONE UNCERTAINTIES

The supply risks far outweigh continued eurozone woes and will likely keep Brent prices above USD 110, Friesen said.

Europe was once again mired with uncertainties as eurozone finance ministers dropped plans for a face-to-face meeting on Wednesday, which could further delay any agreement on a 130 billion euro bailout for Greece.

Greece needs a second package of financial aid to save it from disorderly default, but the risk of a widespread financial crisis in Europe eased slightly after China reiterated that it was ready to play a bigger role in solving the region's problems.

Goldman Sachs analysts said in a report late on Tuesday that the jump in Brent prices was driven by diminishing downside risks on less oil demand from a possible economic recession and rising upside risks of higher oil prices needed to restrain demand on less supply.

US OIL STOCKS

Brent's premium to US crude stayed just above USD 16 a barrel after the latest data from the United States indicated a firm foundation for an economic recovery.

US retail sales rose 0.4% in January, after being flat the previous month, with automakers reporting the strongest sales in nearly 2-1-2 years in January.

US crude inventories rose 2.9 million barrels last week, the industry group American Petroleum Institute said in a report released during post-settlement trading on Tuesday, a bigger build than expected.

Gasoline stocks rose 1.8 million barrels, while distillate stockpiles fell 2.2 million barrels, with a drop in heating oil stocks making up 1.3 million barrels of the decline, the API report said.

US crude stocks were expected to be up 1.5 million barrels, according to a Reuters survey of analysts ahead of weekly inventory reports.

Gasoline stocks are expected to be up 800,000 barrels, with distillate stockpiles seen down 1.1 million barrels, the survey showed.

The US Energy Information Administration's inventory report is slated for release at 10:30 a.m. EST (1530 GMT) on Wednesday.