Brent crude was steady above $125 a barrel today after sharp gains in the previous session, supported by fresh signs of a sustained recovery in top oil consumer the United States and the prospect of tighter crude supplies from the North Sea.
Hopes for firmer oil demand rose after a key gauge of US manufacturing activity beat expectations in March, a day after data showed a similarly strong performance by China's factories last month. The upbeat data offset disappointing economic numbers from Europe.
However, trading is likely to stay rangebound for the rest of the week ahead of the long Good Friday weekend and as the market watches for key jobs data from the United States due on Friday.
"The mood has changed a bit with the good PMI numbers from China and the US, although the risks in the euro zone remain," said Victor Say, an analyst with Informa Global Markets in Singapore.
"The market is taking a breather today, and is likely to be subdued for the rest of the week. No one wants to be caught out during the long weekend, especially if there's a surprise from the US non-farm payrolls report."
Front-month Brent crude fell 41 cents to $125.02 a barrel by 0607 GMT, after settling up $2.55 at $125.43.
US crude futures lost 35 cents to $104.88, after rising by more than $2 in the previous session.
The threat of further supply disruptions also supported prices, as British oil major BP said yesterday it had shut the Valhall platform in the North Sea last week.
Traders said the shutdown led to loading delays of one of the four crude oil streams used for the global Brent price benchmark.
The Institute for Supply Management's index of US factory activity rose to 53.4 in March from February's 52.4, topping economists' expectations and keeping the reading above 50, indicating expansion in the sector.
Adding to the optimism, the Energy Information Administration (EIA) said yesterday US oil demand in January was revised higher by 169,000 barrels per day (bpd) from the previous estimate, but that still left demand down 853,000 bpd, or 4.46 per cent, from a year earlier.
Ahead of weekly reports on US oil inventories, crude stocks were expected to have risen last week, according to a Reuters survey of analysts yesterday.
However, upbeat sentiment was dampened by ongoing concerns of slowing oil demand in major consumers Europe and Japan.
The euro zone's manufacturing sector shrank for an eighth month and at a faster pace in March, according to Markit's Eurozone Manufacturing Purchasing Managers' Index.
There was also uncertainty surrounding Japan's oil demand, after a top government spokesman said that a ministerial-level meeting today would not yield a decision on the restart of two nuclear reactors.
All but one of Japan's 54 commercial nuclear reactors are now shut after going offline for routine maintenance, unable to restart due to local communities' concerns over nuclear power safety.
"Despite the potential for official authorization to restart some nuclear plants in the next few weeks, we project that it may not shift balances enough to materially alter demand for oil at the summer peak," analysts at JP Morgan said in a research note.
Reuters
