SYDNEY, Mar 17 (Reuters) Oil prices sat tight above $63 on Friday, bringing the week's gains to nearly 6 percent after the previous day's leap on fears of tight summer gasoline supplies.
U.S. crude was down 8 cents at $63.50 a barrel after climbing more than 2 percent on Thursday. The new front-month May Brent crude contract fell 15 cents to $64.06.
''Crude prices are holding on despite those bearish crude inventories,'' said David Thurtell, commodities strategist at the Commonwealth Bank of Australia. ''The focus has definitely remained on new environmental standards and falling fuel stocks.'' Prices fell midweek after a U.S. government report revealed a fifth weekly rise in crude stocks, now at seven-year highs as a warm winter allowed the world's biggest energy consumer to rebuild supplies after 2005's devastating hurricane season.
But traders have turned their attention to falling stockpiles of refined products, and notably gasoline, that still stand at robust levels but are being drained by an intensive refinery maintenance program focussed on new, cleaner fuel specifications.
Refiners are reducing production of gasoline containing suspected carcinogen MTBE on concerns over potential lawsuits, while keeping pace with solid demand. Gasoline consumption in the past four weeks has risen 2 percent compared with last year.
Gasoline fell 0.4 percent to $1.8677 a gallon after Thursday's 2.5 percent rally stalled.
PRECAUTIONARY ELEMENT While reassured by sturdy inventory levels, traders have been reluctant to push oil prices much below $60 as geo-political turbulence casts a shadow over some of OPEC's major producers.
''The market is used to oil prices starting with a five or six,'' said Commonwealth Bank's Thurtell. ''That reflects a precautionary element creeping in on fear of further supply interruptions from conflicts or more hurricanes.'' Spare capacity of around 1.5 million barrels per day held by the Organization of the Petroleum Exporting Countries, already pumping near full-throttle, is seen is insufficient to cope with a major outage from member countries embroiled in conflict.
Militant attacks in OPEC producer Nigeria have already forced the shut-in of over half a million barrels per day of crude production, and it is unclear when normal output will resume.
Permanent members of the U.N. Security Council meet in New York next week to thrash out differences on how to deal with Iran's nuclear ambitions, although Tehran has so far ruled out halting oil sales in response to possible U.N. sanctions.
''The market has been responding to the uncertain political situation -- Iran, Nigeria and intensifying military activity in Iraq,'' said Dariusz Kowalczyk of CFC Securities in Hong Kong.
The United States launched its largest airborne assault in Iraq since the 2003 invasion, aimed at quelling Sunni insurgency.
REUTERS CS VC0932