NEW YORK (Reuters) - Oil prices rose on Tuesday as hopes that the European Central Bank will act to contain the region's debt crisis boosted crude futures and sent the euro to a seven-week peak versus the dollar.
U.S. front-month September crude futures hit a three-month high above $97 a barrel as the contract approached expiration.
Investors remained optimistic that the ECB could take action to ease Spanish and Italian borrowing costs a day after the central bank sought to quell speculation contained in a report suggesting it was considering buying bonds of euro zone countries if their borrowing costs breached a certain level.
An upcoming maintenance-related North Sea oil production slide added support for oil, along with heightened tensions in the Middle East as violence in Syria continues and Iran's ongoing dispute with the West over Tehran's nuclear program.
Brent's sensitivity to North Sea production curbs and potential Middle East supply disruptions has kept front-month contracts priced above months further out, or in backwardation, and provided the lift to bring prices back well above $100 a barrel after settling at $89.23 on June 21.
On Tuesday, Brent October crude rose 94 cents to settle at $114.64 a barrel, after reaching $115.58.
Brent hit a three-month peak at $117.03 last Thursday as its September contract headed to expiration and went off the board at $116.90 a barrel, the highest settlement since May 2.
Expiring U.S. September crude on Tuesday rose 71 cents to settle at $96.68 a barrel. The settlement and intraday peak at $97.60 were the highest since May 10. The settlement was just below the 200-day moving average of $96.73, after prices tested above that level during the session.
U.S. October crude rose 58 cents to settle at $96.84 a barrel.
Total crude trading volume continued to experience a summer lull, with Brent and U.S. crude turnover below their 30-day averages and less than 500,000 lots traded.
"Optimism for a breakthrough in dealing with Greece is propelling the risk appetite," Addison Armstrong, senior director for market research at Tradition Energy said in a note.
Greek Prime Minister Antonis Samaras will meet German Chancellor Angela Merkel, French President Francois Hollande and Eurogroup chief Jean-Claude Juncker this week to try to secure more funding from the European Union, International Monetary Fund and ECB, despite falling behind on its targets to cut debt.
U.S. gasoline and heating oil rallied more than 1 percent, adding more than 3 cents as recent refinery problems keep supporting fuel prices.
Price strength for U.S. oil futures also came from concerns about tropical weather threats, with Tropical Storm Issac headed west toward the Caribbean.
Another low pressure system in the Atlantic is expected to become a tropical cyclone in the next two days, the U.S. National Hurricane Center said.
U.S. crude inventories fell 6 million barrels last week, industry group American Petroleum Institute (API) said in its weekly report on Tuesday, much more than expected. <API/S>
Gasoline stocks rose 869,000 barrels, while distillate stocks fell 1.0 million barrels, the API said.
The U.S. Energy Information Administration's inventory report will follow on Wednesday at 10:30 a.m. EDT (1430 GMT).
Ahead of the weekly inventory reports, U.S. crude stocks had been forecast to have fallen only 400,000 barrels, a Reuters survey of analysts showed.
Distillate stocks had been expected to be up 1.0 million barrels, with gasoline inventories down 700,000 barrels.
Euro zone debt crisis: r.reuters.com/hyb65p
Oil positioning: link.reuters.com/tat86s
Reuters Hurricane Tracker: r.reuters.com/san78n
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MIDDLE EAST TURMOIL
Turkey is investigating possible Syrian links to Monday's deadly car bomb attack near its southeastern border, highlighting concerns that the conflict might start to spill out of Syria's borders.
Russian Foreign Minister Sergei Lavrov met China's top diplomat and a Syrian government delegation on Tuesday, a day after President Barack Obama said U.S. forces could intervene if Syrian President Bashar al-Assad deployed chemical weapons against rebels trying to topple him.
The U.N. nuclear agency and Iran will meet on Friday in Vienna, the International Atomic Energy Agency confirmed on Tuesday, for the first time since a June meeting produced no progress towards answering questions about suspected nuclear weapon research in the Islamic state.