Brent crude held steady above $91 per barrel on Tuesday as short-covering and forecasts of a drop in US crude inventories offset worries that a European summit would be unable to produce a concrete solution to the region's debt crisis.

The two-day summit in Brussels will be the 20th time EU leaders have met to try to resolve a crisis that has spread across Europe since it began in Greece in early 2010. Appetite for riskier assets is expected to stay low as investors remain cautious ahead of the meet later this week.

Brent crude was at $90.86 a barrel, down 15 cents. US crude fell 25 cents to $78.96.

'The sentiment continued from last night on some short covering triggered by RBOB (gasoline futures),' said Ryoma Furumi, a commodities sales manager at Newedge Japan, referring to a rise of nearly 3 percent in US gasoline futures on Monday, fuelled by concerns about supplies in New York Harbor, the delivery point for the contract.

'People are staying on the sidelines to see which way the market will go.'

Oil prices are expected to be underpinned by forecasts for a 700,000-barrel drop in US crude oil stockpiles last week and supply disruptions in Norway and Argentina due to labour strikes.

Worries about production from the Gulf of Mexico due to a storm threat had boosted oil prices in the previous session, but these concerns have eased with Tropical Storm Debby headed away from energy infrastructure in the basin.

The appetite for riskier assets is expected to stay low as the debt crisis grinds on in the euro zone, where Cyprus became the fifth country to seek emergency funding for its troubled banks.

'Markets appear to be in risk-off mode, pricing in for disappointment ahead of the EU summit,' ANZ analysts led by Mark Pervan said in a note.

'We think any progress could result in a commodity market rally, particularly in oil prices.'

Brent oil has shed more than 25 per cent from its 2012 peak above $128 reached in March as economic uncertainty has dimmed the global demand outlook at a time of ample supplies.

Higher output by Opec, in particular Saudi Arabia, has also muted the impact of imminent sanctions on Iran oil exports.

EU governments on Monday formally approved an embargo on Iranian oil to start on July 1, dismissing calls by debt-ridden Greece for possible exemptions to help ease its economic crisis.

'We've always have assurance from Saudi Arabia that they will cover for Iranian supply,' Newedge's Furumi said.

The embargo comes as part of a series of measures designed to put pressure on Iran to halt what the United States and others say is a nuclear weapons programme.

Despite Opec's call to adhere to a production quota, top oil exporter Saudi Arabia is showing no sign of changing its policy of high output in order to support global economic growth. – Reuters