Oil edges up towards $70 ahead of US stock data

SEOUL, May 17 (Reuters) Oil prices edged higher for a second day towards a barrel on Wednesday, halting recent sharp losses after U.S. data showing milder-than-expected inflation helped soothe worries over high prices denting demand.

U.S. June light crude oil was up 19 cents at .72 a barrel by 0713 GMT after gaining a modest 12 cents on Tuesday. London Brent for July delivery was up 20 cents at .28.

Prices are still down 5 percent from late last week as investors fear high crude and materials prices could slow demand for oil and hurt economic growth.

''A big fall on Monday was triggered by the International Energy Agency report saying demand was being adversely affected by high prices -- a lot of that is now already built into prices,'' said Tony Nunan, assistant general manager of risk management at Mitsubishi Corp.

Support for crude and gold prices came from U.S. government data on Tuesday. It showed U.S. producer prices, excluding food and energy, rose less than expected last month, helping calm inflation worries and encouraging speculation the Federal Reserve may be able to end its campaign of interest rate rises.

A partial loss of crude exports from Nigeria and concern over possible disruptions from Iran amid its nuclear dispute also continued to support oil prices.

''The market is still bullish in the medium and longer term,'' Nunan said. ''We are not out of the woods yet as far as Iran's nuclear issue is concerned. And also the U.S. gasoline situation is still not clear and the hurricane season is on the horizon.'' Concern that a standoff between Iran and the West over Tehran's nuclear ambitions could cut exports from the OPEC member has been one factor behind high oil prices this year.

Escalating the row, Iranian President Mahmoud Ahmadinejad said on Wednesday a European offer asking Iran to give up its uranium enrichment programme in return for a package of incentives would be like accepting candy in payment for gold.

The remarks came after EU diplomats said on Tuesday the EU's three biggest powers plan to offer Iran a light-water nuclear reactor as part of a package of incentives if Tehran agrees to freeze its uranium enrichment programme.

However, any disruptions in Iran's crude oil exports can be covered for more than four years by the 26 countries that belong to the International Energy Agency, a U.S. Energy Department official said on Tuesday.

Traders are now waiting for U.S. government inventory data due later on Wednesday, forecast in a Reuters poll of analysts to show a 500,000 barrel drop in crude stocks, but a 1.6 million barrel rise in gasoline amid lower demand and higher refinery output.

Supplies of gasoline-rich crude from OPEC member Nigeria have been slashed by militant attacks, though Royal Dutch Shell Plc said on Tuesday it expected to return in coming weeks to the Nigerian facilities it has been forced to shut down.

Shell has lost 455,000 barrels per day (bpd) of oil output due to the attacks.

Worries over the potential for U.S. gasoline shortages during peak summer demand in the world's top consumer have also helped drive prices, which are 14 percent up from the start of the year.

REUTERS CS KN1406