Brent crude futures held steady above $122 today, drawing support from a faster-than-expected expansion of the US economy and better factory data from China amid concerns of supply disruption from the Middle East.
Positive numbers from two of the world's biggest oil consumers have put a floor under Brent even after the contract surged 10.5 per cent last month to its highest since February 2011. US crude is under pressure from a surprise build in stockpiles last week as refinery utilisation dropped.
Front-month Brent slipped 1 cent to $122.65 a barrel by 3.25am, after settling $1.11 higher at $122.66 in the previous session. US oil slipped 8 cents to $106.99 a barrel after settling 52 cents higher at $107.07.
"There are just too many geopolitical risk factors out there that are supporting oil," said Tony Nunan, a risk manager at Mitsubishi Corp. "On the other hand, a further correction cannot be ruled out because the market just went ahead of itself and there are concerns over demand as the euro zone is still not out of the woods."
Brent slumped earlier in the week as investors booked profits after a surge to near 10-month highs, and many participants still see a possibility of a further fall.
Oil investors are worried about a disruption in supplies from Opec producer Iran as Western sanctions tighten around the Islamic Republic due to Tehran's disputed nuclear programme.
Sanctions on Iran are disrupting oil exports, and further restrictions could tighten global oil markets already hit by a rash of outages in other countries, a report required by the recent US sanctions law said yesterday.
With world oil prices soaring, US and European insurance companies are declining to insure deliveries of Iranian oil even before the full Western sanctions go into effect, according to a report by the Energy Information Administration yesterday.
The EIA survey, which looked at global oil output and prices over the last two months since US president Barack Obama signed the law, said markets have become increasingly tight and could worsen if Iran's oil is unavailable.
Against the backdrop of supply concerns the outlook is for oil demand to grow, as China's factories grew more than expected in February with new export orders for big firms bouncing back, a government survey showed.
The China numbers are on the back of data that showed the US economy grew a bit faster than initially thought in the fourth quarter last year and manufacturing activity in the US Midwest rose to a 10-month high in February.
These concerns helped oil post gains while Asian shares fell following a slide in US stocks, which snapped a four-day winning streak. Comments by Federal Reserve Chairman Ben Bernanke yesterday disappointed investors hoping for a strong signal of more stimulus.
"It was not what Ben Bernanke said last night but what he didn't say that caused the global sell-off," Ben Taylor, a sales trader at CMC Markets, said in a report. "Whilst the economic picture in the United States is getting better the market is reliant on the knowledge that stimulus is still available if the situation were to worsen."
US oil prices are under pressure after the EIA showed crude stocks rose 4.16 million barrels to 344.87 million barrels in the week to February 24 versus the 1.1 million barrel build forecast by analysts in a Reuters poll.
Imports of crude oil rose 96,000 barrels per day to 9.15 million bpd. Refinery utilisation dropped 1.9 percentage points to 83.6 per cent of capacity. Analysts had forecast a 0.2 percentage point increase.
Reuters
