* Positive German data outweighs Moody's downgrades
* Middle East tensions continue to support
* Coming up: API weekly inventories report at 2130 GMT
(Recasts, adds fresh quotes, updates prices)
LONDON, Feb 14 (Reuters) - Oil prices held steady on
Tuesday as better-than-expected German economic data and a
successful Italian bond auction eased fears about European
demand, while worries about supply disruption due to Middle East
tensions continued to underpin the market.
Brent crude futures rose 11 cents to $118.04 a
barrel at 1137 GMT. U.S. crude was up 47 cents to $101.38
a barrel.
Analysts and traders said good newsflow out of Europe had
helped the euro rally against the dollar and lifted risk assets
as investor sentiment about European demand growth had improved.
"We had some successful bond auctions out of Italy, and the
German data was better than expected," said Michael Hewson, an
analyst at CMC Markets. "That has taken the sting out of the
Moody's downgrades."
The German ZEW survey, which measures analyst and investor
sentiment, surprised on the upside, bolstering hopes Europe's
largest economy was holding up despite the debt crisis.
Both oil contracts had been somewhat weaker earlier in the
session after Moody's warned it might cut the top ratings of
France, Britain and Austria by assigning their triple A debt
ratings a negative outlook.
It also downgraded Italy, Spain and Portugal, citing
uncertainty over the prospects for fiscal and economic reform in
the euro area and the weak economic outlook in Europe.
Hewson said ratings agencies had lost the capacity to shock.
"If we had had these downgrades three years ago we would have
seen a significant sell off ... but all we saw was a bit of
profit-taking," he said.
"It shouldn't come as a surprise to anyone that European
countries face some difficult challenges," added Michael
Poulsen, oil analyst at Global Risk Management. "We saw the S&P
downgrade about a month ago on almost the same countries."
Olivier Jakob, oil analyst at Petromatrix in Switzerland,
added that Brent had lost some of the support it had enjoyed
from the refined products complex after the extremely cold
weather conditions of the last two weeks eased.
"The cold blast in Europe is over. Yesterday we had some
pressure on the gasoil crack, gasoil has not been able
to move above $1,000 a tonne, and that has put a lid on Brent,"
he said.
MIDDLE EAST VIOLENCE
Oil prices remain underpinned by ongoing tension in the
Middle East, with Israel accusing Iran and its Lebanese ally
Hezbollah of being behind two bomb attacks that targeted Israeli
embassy staff in India and Georgia on Monday.
Iran and Israel are already at loggerheads over Tehran's
nuclear programme.
Violence also spread in Syria as troops bombarded opposition
strongholds, entering a 10th day of shelling and sniper fire in
the city.
Meanwhile oil production and exports from Yemen's Masila
oilfield, the country's largest, have stopped after workers from
state-owned PetroMasila went on strike last Thursday.
"Worries remain on the supply of crude in the Middle East,
which should be built into Brent," said Tony Nunan, a risk
manager with Mitsubishi Corp in Tokyo. "The worsening of the
situation in Iran or Syria could cause a shift in Brent prices."
The American Petroleum Institute will release its weekly
report on U.S. crude stocks on Tuesday at 2130 GMT.
A Reuters poll of analysts is forecasting a rise in U.S.
crude oil inventories for a fourth week in a row due to higher
imports and lower refinery utilisation.
On average, domestic crude stockpiles are expected to add
1.9 million barrels in the week to Feb. 10, with six out of
seven analysts predicting a build.
(Additional reporting by Jessica Jaganathan in Singapore;
editing by James Jukwey)
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