Brent crude futures steadied near a two-week high this morning, holding around $105 per barrel as rising Middle East tensions offset concerns about moderating demand growth to keep prices in a tight range.

Reports that Lebanese Hezbollah guerrillas were involved in fierce fighting for Syria’s embattled president prompted alarm the civil war might spread to neighbouring oil producers, while a weakening dollar added to support.

Bearing down on prices are concerns that data this week may show sluggish growth in major consuming economies, adding to high inventory levels and expectations of increased supply.

“The conflict in Syria looks like it’s getting serious and the dollar is heading lower, while continuing high inventories are putting downward pressure on prices,” said Victor Shum, managing director of IHS Consulting in Singapore.

“(But) given the physical fundamentals, I expect prices to moderate from current levels, unless the situation in Syria flares up further,” he said.

Front-month Brent futures added 22 cents to $105.02 per barrel by 05.56 GMT, off $105.31 touched in the previous session, their highest since May 7.

US crude gained 19 cents to $96.90 and could get further support from inventory data due today, which may show a drop in crude stockpiles, according to a Reuters poll.

“Seasonal Asian oil demand (is) not expected to pick up until June, (so) we expect prices to remain in the $100 to $105 per barrel range,” ANZ analysts wrote in a report.

Highlighting these concerns, UBS trimmed its forecast for economic growth in China, the world's biggest energy consumer, citing weak credit expansion and credit growth.

“While some of the weakness may be transitory, increasingly evidence suggests that growth will be weaker than we previously envisaged,” UBS China economist Tao Wang wrote in a report.

The dollar also offered support, falling against a basket of currencies, as traders pared back expectations that Federal Reserve chairman Ben Bernanke would hint at tapering US bond purchases when he testifies to Congress on tomorrow.

Reuters