Oil futures rose above $110 a barrel on Tuesday, on hopes that Europe would take further action to tackle its debt crisis, while supply worries stemming from North Sea maintenance, Middle East tensions and the hurricane season added further support.
The European Central Bank (ECB) last week said it may again start buying government bonds to reduce crippling Spanish and Italian borrowing costs, but details of how it will stabilise the bloc's bond markets have yet to be fleshed out.
Brent crude for September delivery rose 79 cents to $110.34 a barrel by 1048 GMT, climbing above $110 a barrel for the first time since mid May.
U.S. crude firmed by 33 cents to $92.53.
"Oil markets are being driven up by a combination of market speculators being positioned short, the recent ECB announcements from Draghi and Middle Eastern supply concerns," said Guy Wolf, macro strategist at Marex Spectron in London.
"We've seen a decent level of inventory draw in the U.S. recently so an active hurricane season could take the market extremely tight."
In North America, investors were watching Tropical Storm Ernesto. U.S. forecasters said it should strengthen into a hurricane before hitting Mexico's tourist Yucatan peninsula but it was too early to know if it could disrupt oil and gas operations in the Gulf.
Crude stockpiles in the United States were forecast down last week for a second straight time, a preliminary Reuters poll showed.
Hopes that the United States and China - the world's top two oil consumers - will adopt stimulus measures to boost growth were also a positive for the oil market.
China will release from Thursday a deluge of data, ranging from industrial output to investment.
"Risk appetite is coming back to the market," said Eugen Weinberg at Commerzbank in Frankfurt.
"The market is waiting for more confirmation of the overall positive trend. Expectations are so low that it is unlikely there will be a surprise to the downside."
TIGHTENING SUPPLIES
Oil output from the North Sea is set to fall sharply in September due to oilfield maintenance and natural decline, which may raise further doubts about Brent as the main global oil benchmark.
The Brent contract is based on four North Sea crude oils - Brent, Forties, Oseberg and Ekofisk (BFOE). An export schedule later on Tuesday is expected to show a drop in supply of the largest stream, Forties, possibly bringing monthly output of the four crudes to a record low.
The forthcoming supply tightness has pushed the front month spread to its widest since October 2011.
The September Brent price has risen sharply above October, a market condition known as backwardation which points to strong prompt demand.
Violence in Syria and Iran's dispute with the West over Tehran's nuclear programme continued to keep investors worried about the potential threat to oil supply from the region.
Syria's prime minister fled on Monday as fighting continued, while a pipeline explosion halted Iraqi crude exports to Turkey.
Delays on exports of Iraqi Kirkuk, an alternative to embargoed Iranian crude, had already reached nearly 20 days after the Kurdish Regional Government (KRG) stopped adding its output to the flow due to an on-going payment dispute with the central government in Bagdhad. The KRG was due to restart exports in August. (Reporting by Julia Payne in London, Florence Tan in Singapore; Editing by Anthony Barker)
Oil up on prospects of EU debt moves, tighter supply
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