SINGAPORE Brent futures held steady above $110 on Thursday on renewed worries over supply disruptions from the Middle East, while the escalating debt crisis in the euro zone reinforced concerns about demand and capped gains.
Uncertainty over a bailout for Spain and wrangling over Greece's debt highlighted the difficulty Europe is facing in tackling its problems, weighing on broader markets from Asian shares to the euro and gold.
Comments from Iran about "neutralizing" all efforts to sabotage its nuclear facilities supported oil, however.
Front-month Brent crude had risen 35 cents to $110.39 a barrel by 0652 GMT, partly recouping the previous session's losses, while U.S. oil gained 37 cents to $90.35.
"There is still uncertainty over the euro zone crisis even though policymakers are putting in a lot of effort to deal with it," said Ken Hasegawa, a commodity sales manager with Newedge in Tokyo.
"The geopolitical worries in the Middle East -- while they have been around for a long, long time -- still continue to support prices."
The European benchmark is poised to gain 13 percent this quarter compared with a 20 percent drop in the previous three months. The U.S. contract is set to advance 6 percent, recouping part of the 17 percent fall in the earlier three months.
There is about a $20 premium on Brent prices because of the tensions in the Middle East over Iran's disputed nuclear program, Hasegawa said. Without that, a fair value for the contract is between $80-$90 a barrel, he said.
Iran is under threat of military action from "uncivilized Zionists", a clear reference to Israel, Iranian President Mahmoud Ahmadinejad said in a speech before the U.N. General Assembly.
Based on technicals, Brent is expected to trade between a low of $109 and a high of $111.50 a barrel in the next 24 hours, Hasegawa said.
U.S. oil is relatively weak because it slipped below its 100-day moving average of $90.27 in the previous session. The U.S. contract may fall to Wednesday's low of around $89 and could then drop further to $88.50, with its upside capped at $91.50.
Oil may trade sideways, with Brent staying within a range of $108-113/bbl near-term, analysts at ANZ Bank said in a note.
The market is now eyeing Spain which will announce a series of economic reforms and a tight 2013 budget on Thursday.
"There is a lot of nervousness built into tonight's Spanish budget, and video footage of out of control riots are not helping to build confidence," Ben Taylor, a sales trader at CMC Markets, said in a report.
"I think the markets will push Spanish Prime Minister Mariano Rajoy's hand into asking for a bailout."
Demonstrators this week clashed with police on the streets of Athens and Madrid in an upsurge of popular anger at new austerity measures being imposed on two of the euro zone's most vulnerable economies.
The U.S. contract drew support from data that showed crude and refined product stockpiles in the world's biggest oil consumer fell unexpectedly last week as crude imports plunged.
Domestic crude stocks declined by 2.45 million barrels to 365.18 million barrels, the Energy Information Administration said, against a forecast increase of 900,000 barrels. <EIA/S>
Gasoline inventories dropped by 481,000 barrels to 195.83 million barrels, against expectations of an increase of 200,000 barrels. That in part helped U.S. RBOB gasoline futures jump 11.40 cents, or 3.8 percent, on Wednesday.
"Growing concerns over Spain's debt situation, weaker equity markets and a stronger U.S. dollar pressured prices early on," the ANZ analysts said.
"Although a surprisingly positive U.S. crude and crude product inventory report saw prices improve later in the U.S. session."
(Editing by Himani Sarkar and Joseph Radford)