Oil rises after Baghdad rocket attack jangles nerves

Oil prices climbed on Thursday after a rocket attack on Baghdad triggered fresh concern over the potential for conflict in the Middle East, a day after markets were roiled by an Iranian missile strike on Iraqi bases hosting US forces.

But gains were muted as Washington and Tehran looked to defuse a crisis in the crude-producing region.

Brent crude futures rose 43 cents, or 0.7%, to $65.87 a barrel by 0109 GMT, after seesawing through Wednesday to end with a 4.1% tumble.

West Texas Intermediate futures added 61 cents, or 1%, to $60.22 after falling nearly 5% in the previous session.

In Thursday's attack, two rockets fell on Baghdad's Green Zone, which houses foreign missions and government buildings. There were no casualties, and no immediate claim of responsibility, but the strike served as a reminder that the region remains on tenterhooks.

Crude oil stocks were up by 1.2 million barrels in the week ended Jan. 3 to 431.1 million barrels, against analysts' forecasts in a Reuters poll for a 3.6 million-barrel drop.

Meanwhile J.P. Morgan maintained its forecast for Brent to average $64.50 a barrel this year.

"The impact on oil prices will depend on (the) extent of supply disruption versus available spare capacity, global oil inventories and reaction to oil price from U.S. producers," the bank said in a commodities research note.