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(Reuters) - Global oil benchmark Brent hovered near $80 a barrel on Wednesday as investors worried about global trade disruption and tensions in the Middle East following attacks on ships by Yemen's Iran-aligned Houthi forces in the Red Sea.
Gains were capped by weekly data from the U.S. Energy Information Administration showing a surprise crude inventory build, larger than expected fuel stocks gains and record domestic oil production.
Brent crude futures were up 33 cents, or 0.4%, at $79.56 a barrel by 1:23 p.m. EST (1823 GMT), while U.S. West Texas Intermediate crude rose 13 cents, or 0.2%, to $74.07 a barrel.
U.S. crude prices briefly turned negative following the EIA report and the possibility of a new ceasefire after the leader of Hamas paid his first visit to Egypt for more than a month on Wednesday.
The benchmarks rose by more than $1 earlier in the session as major maritime carriers chose to steer clear of the Red Sea route, with longer voyages increasing the cost of transport and insurance.
On Wednesday, Greece advised commercial vessels sailing in the Red Sea and the Gulf of Aden to avoid Yemeni waters. Greek ship owners control about 20% of the world's commercial vessels in terms of carrying capacity.
Meanwhile, Washington on Tuesday launched a task force to safeguard commerce in the region. However, sources including shipping and maritime security officials told Reuters that few practical details are known about the initiative or whether it will directly engage in the event of further armed attacks.
The Houthis vowed to defy the U.S.-led naval mission and to keep targeting Red Sea shipping in support of Palestinian enclave Gaza's ruling Hamas movement.
About 12% of world shipping traffic passes up the Red Sea and through the Suez Canal. Although oil supply has been realigned, no shortages have yet emerged, analysts said.
"As long as production is not threatened, the market will eventually adjust to changing supply routes," said Ole Hansen, an analyst at Saxo Bank.
ECONOMIC GREEN SHOOTS
"It is not a far-fetched thought to attribute the present advance in prices as much to rate-cut expectations, falling bond yields and dollar and healthy equity markets as to the geopolitical temperature," said Tamas Varga of oil broker PVM.
Recent data suggests central bank action to quell sticky inflation in Europe had made a meaningful difference.
German producer prices fell more than expected in November, data showed on Wednesday, a day after it was confirmed that euro zone inflation slowed sharply to 2.4% last month on a year-on-year basis.
A European Central Bank policymaker cautioned it was "rather unlikely" that interest rates would be cut during the first six months of next year.
In Britain, meanwhile, inflation plunged in November to its lowest rate in more than two years, strengthening the case for rate cuts.
In a separate boost to prices, the U.S. bought 2.1 million barrels of crude for delivery in February, its Energy Department said on Tuesday, as the country continues to replenish its reserves.
(Additional reporting by Natalie Grover, Florence Tan and Jeslyn Lerh; editing by Paul Simao, Nick Zieminski and David Gregorio)
