Brent Crude Rises, Above $109 on U.S. Gasoline Draw

Brent crude rose on Wednesday, staying above $109 a barrel as a larger-than-expected drawdown in U.S. gasoline stocks and positive U.S. economic data trumped concerns over the euro zone debt crisis.

A meeting between French and German leaders didn't result in any concrete measures to try and find a way out of Europe's sovereign debt problems, but better-than-expected U.S. industrial production numbers helped bolster sentiment.

Brent crude for October rose 47 cents to $109.60 by 2:13 a.m. EDT. U.S. crude was up 59 cents at $87.25 a barrel, after slipping $1.23 on Tuesday to settle at $86.65.

"The meeting between Sarkozy and Merkel didn't amount to too much and that will cap gains in oil futures," said Victor Shum, an analyst with energy consultancy Purvin and Gertz.

French President Nicolas Sarkozy and German Chancellor Angela Merkel proposed a tax on financial transactions and closer joint governance of economic policy, but did not propose increasing the euro zone bailout fund or selling euro zone bonds.

Asian shares fell on Wednesday and the euro wobbled after the meeting, while safe-haven asset gold held steady near a record high.

U.S. stockpiles of gasoline fell 5.4 million barrels in the week to August 12, well above analyst expectations for a 1.3 million barrel draw, data from the American Petroleum Institute (API) showed on Tuesday. The U.S. Department of Energy will release inventory data later on Wednesday.

"The API numbers were quite supportive as gasoline supplies have come down, but risks continue to be there on the economic front," said Shum.

Brent crude may end its rebound at around $109.57 a barrel, while U.S. oil is unlikely to reach $90 per barrel as it faces a strong resistance at $88.17, Reuters technical analyst Wang Tao said.

ECONOMIC OUTLOOK

Concerns about the debt crisis have weighed on oil markets in recent weeks, adding to worries about weak U.S. economic data that could hit fuel demand.

The euro zone economy slowed sharply in the second quarter, hobbled by sluggish growth in Germany and stagnation in France, raising fears of a longer-term dip.

There was more upbeat news out of the U.S., with industrial output at the world's top oil consumer recording its best gain in seven months in July and Fitch Ratings confirming the country's top-notch credit rating.

Also boosting sentiment were comments by China's top state planner on Wednesday that the world's second-largest economy is expected to expand by 7 percent annually over the next five years.

However, analysts warned that a sharp deterioration of economic conditions could impact China's oil demand in the second half of the year.

"Risks to growth have increased, however, and if the economic slowdown proves more pronounced than expected, oil demand and crude oil imports could be negatively affected," said Barclays Capital in a report on Wednesday.

On the supply side, the conflict in Libya and Syria could further disrupt production and support prices, analysts said.

"The scale of disruption to Syrian oil production remains unclear, but Syria is reportedly importing gasoline from companies operating in the Mediterranean despite the existing sanctions," said analysts at J.P. Morgan in a report on Tuesday.

"As highlighted by recent statements by the US, even tougher sanctions may be required to limit Syria's ability to participate in the oil market."

Syrian tanks fired on low-income Sunni Muslim districts in the port city of Latakia on Tuesday, the fourth day of an assault which has killed 36 people and forced thousands of Palestinian refugees to flee, activists said on Tuesday.