Oil eases below $71 but finds solid support

LONDON, June 7 (Reuters) Oil pulled back below on Thursday and analysts said the market had overreacted to a report of a major incursion by Turkish troops into northern Iraq.

Prices earlier neared a nine-month high on the latest headlines from the Middle East. Turkey's foreign ministry and military denied Wednesday's report, but a source said troops had conducted a limited raid across the mountainous border.

London Brent crude, currently seen as a better gauge of the global market than U.S. oil, was down 17 cents at .85 a barrel at 1121 GMT, off a session high of .31.

U.S. crude was up 21 cents at .17.

''The Turkish raid was not as much as initially appeared.

There are no oil exports out of the north of Iraq now anyway, though there would be an impact if it somehow spread and added to instability,'' said Mike Wittner, global head of energy market research at Calyon investment bank.

Data showing U.S. refiners were struggling to boost summer gasoline production and Cyclone Gonu's disruption of Omani oil and gas exports lent support to the market, however, keeping Brent crude within a dollar of late May's .80 high.

Weekly U.S. inventory data showing a surprise drop in refinery utilisation rates last week added to gains, overshadowing an unseasonally large 3.5 million barrel build in gasoline stocks thanks to a surge in imports.

With gasoline stocks still in a near 10-million-barrel deficit compared to their normal levels and refiners utilisation falling to below 90 percent, the weakest early-June level in 15 years, traders remained anxious over driving season supplies.

''The fall in refinery runs ultimately continues to stoke concerns over supply availability,'' wrote Harry Tchilinguirian, senior oil market analyst at BNP Paribas Commodity Derivatives.

U.S. winter heating oil stocks are 16 percent below the five-year average, noted Frederic Lasserre, head of commodities research at Societe Generale Corporate and Investment Banking.

Already some investors are looking beyond the summer to winter demand in the world's top consumer.

In the Middle East, Cyclone Gonu, the strongest storm to reach Oman in 30 years, disrupted the Mina al-Fahal terminal for a third day on Thursday, halting exports of 650,000 barrels per day (bpd) of crude. But Gonu weakened to the force of a milder tropical storm as it moved toward Iran.

Adding to the sense of supply unease already heightened by Nigerian outages and Iran's nuclear drive, Brazilian oil workers are threatening a five day strike that could affect the country's over two million bpd of production.

REUTERS PV VC1955