Brent Approaches $108 on Global Tensions

EU threatens new Russian sanctions; Euro slips to 8-month low vs U.S. dollar. U.S. crude stocks seen falling 2.8 mln barrels.

Brent crude rose towards $108 a barrel on Wednesday as threats to supplies from oil-producing regions overshadowed weak demand and a stronger dollar.

The European Union threatened Russia with harsher sanctions on Tuesday after the downing of the Malaysian airliner in Ukraine, straining the EU's relationship with the world's second-largest oil exporter.

"When the U.S. and the EU impose more sanctions on Russia, that will impact the mid-term production profile of the Russian oil industry," said Andy Sommer, senior oil analyst at Axpo Trading in Dietikon, Switzerland.

Brent crude for September delivery was up 45 cents at $107.78 a barrel by 1135 GMT, after slipping 35 cents in the previous session. U.S. crude for September delivery was 13 cents higher at $102.52 a barrel.

U.S. crude's discount to Brent was $5.26, close to a three-month low as traders waited for U.S. government data on domestic oil stocks due later in the day.

Brent has fallen by about 7 percent since mid-June as weak demand from refineries in Europe amid low profit margins has crimped consumption.

In Libya, oil production fell to around 450,000 barrels per day (bpd), a drop of nearly 20 percent, with escalating violence threatening a hard-won deal to restore oil exports.

The OPEC country's exports could increase, however, with the Brega oil port expected to be operating in a few days after the government reached a deal with protesting security guards.

Traders were also monitoring fighting in the Gaza strip. Top U.S. and United Nations diplomats are seeking talks on halting the conflict that has claimed more than 600 lives.

The euro slipped to an eight-month low against the dollar on diverging interest rate outlooks for the United States and euro zone, with fears that further sanctions on Russia could damage Europe's economy.

A stronger dollar tends to weigh on commodities priced in the U.S. unit as it makes them more expensive for holders of other currencies.

U.S. EIA DATA

Energy traders will focus their attention on the weekly crude oil inventory report from the U.S. Energy Information Administration (EIA) due at 1430 GMT. Stocks are expected to have declined by 2.8 million barrels in the week to July 18, according to a Reuters survey.

Domestic crude stocks fell by 7.5 million barrels the previous week in their biggest drawdown since January, reflecting a sharp increase in refinery activity.

The American Petroleum Institute, an industry group, said on Tuesday that U.S. crude inventories fell 555,000 barrels last week to 374.7 million, with stocks at the Cushing, Oklahoma, delivery point of the U.S. crude contract down 1.4 million barrels.

By Rowena Caine