UPDATE 8-Oil ends up on optimism despite Greece downgrade

                                
 * Moody's Greece downgrade pulls oil, equities off highs
                                
 * Euro zone industrial output April rise lifts oil
                                
 * Coming up: July Brent contract expiry on Tuesday
 (Recasts, updates prices, market activity to settlement)
                                
 By Robert Gibbons
                                
 NEW YORK, June 14 (Reuters) - U.S. oil prices rose on
Monday as uplifting economic news from Europe fed optimism
about the global economy and outweighed a downgrade of Greece's
debt.
                                
 U.S. crude for July <CLc1> rose $1.34, or 1.82 percent, to
settle at $75.12 a barrel after an early $75.99 intraday peak.
                                
 London's ICE Brent <LCOc1> for July delivery rose 85 cents
to settle at $75.20 a barrel. The Brent July contract expires
on Tuesday.
                                
 "Crude futures are up on optimistic economic data from
Europe and on perception that as long as the drilling
moratorium is in effect in the Gulf of Mexico, prices will
continue to rise," said Phil Flynn, analyst at PFGBest Research
in Chicago.
                                
 Oil and equities received an early lift from data showing
euro zone industrial production in April surged year-on-year
more than in any month in almost two decades, giving investors
renewed confidence about the global economy. [ID:nLDE65D0YC]
                                
 Crude eased off early gains after Moody's Investors Service
downgraded Greece government bond ratings into junk territory,
citing risks in the euro zone/IMF rescue package for the
debt-laden country. [ID:nN14207740]
                                
 "Crude failed near $76.00 and spent much of the morning
trading sideways. But it began to drift lower, accelerated by
the Moody's downgrade of Greece. All markets backed off earlier
highs," said Tom Bentz, broker at BNP Paribas Commodity Futures
Inc in New York.
                                
 The euro strengthened against the dollar, but the euro also
pared gains when the Greece debt downgrade rekindled fears
about excessive debt levels in the region. [USD/] The dollar
index <.DXY> remained weaker against a basket of currencies.
                                
 A weaker U.S. dollar tends to boost the price of
dollar-priced commodities as it lowers the price to holders of
other currencies and reduces the value of the currency oil
producers receive for their product.
                                
 The European industrial data had rallied global stocks and
U.S. stocks were higher when oil settled, but gains were
limited by the news of the Greece downgrade. [.N] [MKTS/GLOB]
                                
 European leaders meet Thursday in an effort to convince
financial markets that the debt crisis can be contained through
improved policy coordination and budget discipline.
[ID:nLDE65C0FB]
                                
 Though oil prices slipped on Friday, they managed to post a
gain for the week, with U.S. crude prices up more than 3
percent on lift from strong Chinese export data and lower crude
stockpiles [EIA/S] reported by the government.
                                
 The U.S. National Hurricane Center said that a low-pressure
system in the central Atlantic Ocean had a 40 percent chance of
developing into a tropical cyclone over the next day or two.
[ID:nN14216836] Earlier on Monday, the NHC had said there was a
60 percent chance a storm would develop.
                                
 OPTIMISM ABOUT DEMAND
                                
 Oil traders and analysts have been eyeing indications of
better U.S. demand as the summer driving season heats up and
distillate use improves.
                                
 After reaching a 19-month high above $87 a barrel in early
May, crude futures fell below $65 a barrel later in the month
as the European debt crisis unfolded.
                                
 Money managers raised their net long positions for crude
oil in the week to June 8, the U.S. Commodity Futures Trading
Commission said Friday, marking the first time the net long
positions increased since the start of the euro zone crisis.
[ID:nN11606129] (Graphic:
 http://graphics.thomsonreuters.com/10/CFTC_Crude110610.gif )
                                
 For prices to extend their upward march, U.S. crude need to
settle above $76, a level reached in intraday trade last week
for the first time in a month, according to Tony Nunan, a risk
manager with Mitsubishi Corp, based on technical chart
analysis.
                                
 Oil analysts also are anticipating U.S. crude oil output
will be pared by offshore drilling delays in reaction to BP's
Gulf of Mexico oil spill. [ID:nN13165272]
                                
 "With the U.S. drilling ban likely to hit supplies from the
third quarter onward and demand expected to rise seasonally
between now and August, we feel that seasonality and
fundamentals are moving towards a price rebound," J.P. Morgan
analyst Lawrence Eagles said in a report.
                                
 A Reuters analyst survey on Monday yielded a forecast for
crude supplies to have fallen last week. Products stocks were
expected to be up slightly. [EIA/S]
 (Additional reporting by David Sheppard in London, Alejandro
Barbajosa in Singapore and Gene Ramos in New York)