Oil near $70 on Iran, US gasoline build forecast

SINGAPORE, May 9 (Reuters) Oil held near on Tuesday as Washington dismissed Iran's move suggesting ways to ease tension over Tehran's nuclear plan, and gains will likely be limited by forecasts for another build in U.S. gasoline stocks.

U.S. light crude edged up 15 cents to .92 a barrel by 0443 GMT, after falling 42 cents on Monday on hopes the unprecedented letter from Iranian President Mahmoud Ahmadinejad to U.S. President George W. Bush could help break the diplomatic impasse.

London Brent crude rose 29 cents to .50 a barrel.

U.S. officials have shrugged off the letter as a ploy, timed to influence a Security Council debate as Washington seeks to forge a consensus among major powers for U.N. action against Iran over suspicions it is trying to build a nuclear bomb.

''The impact of the Iran letter on the markets is still quite uncertain. At worst, it is neutral and at best, it's good because this is the first time that, at least, there is a willingness to talk,'' said Michael Coleman, managing director of hedge fund Aisling Analytics.

After a late-night meeting, officials said foreign ministers of major powers failed to agree on a joint strategy after Iran's last-minute gesture, with China insisting that any reference to possible sanctions or war should be eliminated from the U.N.

resolution ordering Tehran to halt uranium enrichment.

Iran says its nuclear programme is for peaceful aims and has vowed revenge if attacked by the United States or U.S. ally Israel, a threat which has rattled oil markets.

The market is pressured by expectations of a 1.5 million-barrel rise in gasoline stocks in the United States for the second-straight week as refinery activity intensifies, ahead of the holiday driving season.

Six U.S. states, worried about summer gasoline supplies, have also asked federal officials about possible waivers from clean fuel rules, the head of the Environmental Protection Agency said.

Aisling's Coleman said U.S. gasoline stocks would continue to rise this month, adding to the short-term bearish sentiment, which could see prices fall to - a barrel.

''There is a lot of refining capacity coming back in May, which is a low-demand month. I believe gasoline stocks will continue to build for the rest of the month as it is still too early for the driving season,'' he said.

''The bull factors driving the market are geopolitical, rather than fundamental reasons. The Iran story, even before the letter, was already getting stale and its risk premium was falling. Unless things deteriorate, I see a significant downside in the short-term.'' REUTERS CS RN1108