U.S. crude stockpiles down 7.5 mln barrels last week; Chinese economic growth quickens to 7.5 percent in Q2. Washington slaps toughest sanctions yet on Russia.
Brent oil held above $107 a barrel on Thursday with a sharp drop in U.S. crude stockpiles boosting the demand outlook in the world's top oil consumer while tougher U.S. sanctions on Russia raised geopolitical concerns.
Continued worries about the political situation in Libya and Iraq also underpinned oil prices.
Brent for September, which became the front-month contract on Thursday, rose 51 cents to $107.68 by 1021 GMT. The August contract, which expired on Wednesday, dropped 17 cents to settle at $105.85 a barrel.
U.S. crude known as WTI, which is sensitive to domestic inventory data, climbed $1 to $102.20 a barrel before paring some gains to remain above $102.
"There were stock draws in the United States, which is why WTI is up more than Brent. There is also the issue of Russian sanctions," said Christopher Bellew, trader at Jefferies Bache.
"But I'm not certain Brent will stay here too long because we are in a contango," he said, referring to a market structure where future prices are seen higher than the front month, encouraging traders to store volumes and wait for price rises.
Oil prices have been on the increase after data released on Wednesday showed a larger-than-expected drawdown in overall U.S. stockpiles and at the Cushing, Oklahoma delivery hub.
A rise in U.S. refining activity caused crude stocks to fall by 7.5 million barrels last week, the biggest draw since January and larger than the 2.1 million drawdown forecast by analysts, data from the U.S. Energy Information Administration showed.
At the same time, geopolitical tensions are on the rise with Russia facing tougher sanctions over the situation in Ukraine, where 11 soldiers were killed on Wednesday as government forces battled pro-Russian separatists.
Rosneft, Russia's largest oil producer, was among firms targeted by further U.S. sanctions announced on Wednesday while Europe agreed to impose its own package.
Oil prices had been in a downward trend since Brent hit a nine-month high of $115.71 on June 19 after Islamist insurgents took control of swathes of northern and eastern Iraq.
Fighting has continued, but initial fears that it would have a large impact on the country's oil exports have eased. Iraq's southern oilfields are set to export 2.6 million bpd in July, the same as May and the highest since 2003.
Traders said that Brent was likely to resume its downward trajectory as market fundamentals pointed to plentiful supplies.
"There are ample supplies of crude augmented by exports of condensates from the United States," Bellew said.
Michael McCarthy, chief market strategist at Sydney's CMC Markets, also predicted that prices could trend lower in the absence of further political developments or market-moving data with U.S. crude testing technical support at $98.50 and Brent at $102.50 a barrel.
Investors are keeping an eye on geopolitical tensions for further trading cues, however.
In Libya, oil exports through its two largest eastern ports, capable of shipping 500,000 bpd, will not start before August, an official said on Wednesday.
China posted slightly better-than-expected economic growth of 7.5 percent in the second quarter, government data showed on Wednesday, boosting the demand outlook.
"The economy in the U.S. is on track to grow. The Chinese economy increased a bit - the growth figures were slightly higher so some support for oil is coming in from the demand side," said Avtar Sandu, senior commodities manager at Singapore's Phillip Futures.
By Lin Noueihed and Keith Wallis