(Reuters) - Brent oil futures were steady above $112 a barrel on Tuesday, supported by supply concerns after U.S. companies slashed crude production in the Gulf of Mexico as Tropical Storm Isaac threatened to strengthen into a hurricane.
Gains may be limited by worries that hurricane damage could prompt refiners to cut crude oil purchases in coming weeks and on heightened expectations that U.S. government may release some of its strategic oil reserves to rein in prices.
"Right now the focus is on supply disruptions in the crude market. The supply-risk premium is keeping prices supported," said Natalie Rampano, commodity strategist at ANZ.
"At the same time there's concern over the possibility that the U.S. might release some of its reserves, those rumors have been doing the rounds for a while."
Brent crude slipped 1 cent to $112.25 per barrel by 0626 GMT, while U.S. crude dropped 11 cents to $95.36.
Brent rose to as high as $115.50 on Monday, gaining nearly $2 as U.S. refiners shut facilities on the Gulf Coast ahead of Isaac, while U.S. oil had touched a session-peak of $97.72.
Energy companies have slashed crude production by 78 percent in the Gulf of Mexico, regulators said on Monday.
Shut-ins are expected to increase over the next few days In the region, which accounts for nearly a fourth of U.S. oil output and 7 percent of its natgas output.
The U.S. National Hurricane Center warned the storm could buffet towns and cities in at least three U.S. states near the shoreline and flood the northern Gulf coast with a storm surge of up to 12 feet in some areas.
"Because U.S. Gulf Coast refiners are operating near full utilization, the potential for disruption to oil product markets is particularly pronounced," J.P. Morgan analysts, led by Colin Fenton, said in a report.
Sources had told Reuters this month that the White House was "dusting off" old plans for a possible release of oil reserves to rein in crude prices, and the International Energy Agency (IEA), which had resisted the plan, appears to have agreed to the idea.
Investors are also focusing on a meeting of Federal Reserve officials in Jackson Hole, Wyoming, which will be marked by a closely-watched speech by Chairman Ben Bernanke on Friday, for cues on the possibility of further monetary stimulus.
Bernanke has used the event for the past two years to indicate the Fed's policy intentions. European Central Bank President Mario Draghi will also speak at the event on Saturday.
The Fed meeting will be followed by the ECB's policy meeting on September 6 and then the German Constitutional Court's ruling on the euro zone's permanent bailout fund on September 12, which may provide clarity on the ECB's bond-buying plans.
Stocks, bonds, the euro and oil have risen in recent days on hopes of further easing by the Fed and bond purchases by ECB.
"Oil is doing what a lot of risk assets are doing these days," said Ric Spooner, chief market analyst at CMC markets in Sydney.
"We are now at a watershed level, after a significant rally and there is a reluctance to push prices above current levels, until we get details beyond the initiatives."
Adding to supply worries, a fire burned for a third day in two fuel storage tanks at Venezuela's biggest refinery on Monday, raising doubts about its plans to restart operations quickly.
Traders are also awaiting data on U.S. inventory due later on Tuesday, which is expected to show that crude stockpiles fell for a fifth straight week due to lower imports.
In related news, Iran has indicated it might allow diplomats visiting Tehran for this week's Non-Aligned Movement (NAM) summit to go to the Parchin military base, which U.N. nuclear experts say may have been used for nuclear-related explosives tests.