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Brent rises above $110, Fed sees low interest rates

Singapore, January 26, 2012

Brent crude rose above $110 on Thursday, extending gains on hopes of demand growth revival after the US Federal Reserve said it aimed to keep interest rates low for much longer than previously planned to help speed economic recovery.     

Markets cheered the Fed's rate outlook and Asian shares, base metals, gold and the euro all rose as the comments helped counter concerns among investors about Greece's debt crisis worsening and hurting the global economy. For oil, added support came from worries about supply because of tensions with Iran.     

Front-month Brent crude gained 80 cents to $110.61 a barrel, reversing two days of losses. US crude gained 41 cents to $99.81, rising for a second day.     

"Markets are supported because of concerns about Iran, while the uncertainty over Europe is making it difficult for oil to exit its current trading range," said Ken Hasegawa, a derivatives manager with brokerage Newedge in Tokyo. "For today, the Fed's comments have triggered selling in the dollar, and that has helped oil and commodities across the board to rise."     

The twin push and pull factors will keep the US benchmark trading in a range between $95 and $104 a barrel, Hasegawa said.     

Further optimism about growth in the world's biggest oil consumer came after three major US manufacturers reported better-than-expected quarterly earnings, and as they stuck to their forecasts for this year.                          

Oil investors are worried that just as the demand outlook looks set to improve, markets face a risk of supply disruption because of tensions between the West and Iran over the Islamic republic's nuclear programme.      

The United States has toughened sanctions, while Europe has put in place a move to ban oil imports from Iran.      

"The passage of EU sanctions against Iranian crude oil leaves the displaced flows to find a market in Asia before the sanctions take effect in July," analysts at Barclays Capital said in a report. "The mathematics of the potential trades seems to be very delicately balanced, leaving a possibility that not all the displaced crude will find a market easily."               

The Fed news also overshadowed data showing crude inventories rose more than expected as imports rebounded and refinery utilisation fell, data from the Energy Information Administration showed. Stocks increased by 3.6 million barrels in the week to January 20, the data showed, well over the 800,000 barrel build forecast in a Reuters poll of analysts.      

US stockpiles of distillates barrels dropped by 2.5 million barrels, after analysts had forecast no change in inventories for the week. Gasoline inventories dipped by 390,000 barrels, against expectations for a 1.9 million barrel rise.         

Brent may break a resistance at $110.90 per barrel and rise further to $112.75, while the focus on US oil is whether it will be able to stand firm above a resistance at $100.40 per barrel, which is critical in confirming a double-bottom, according to Reuters technical analyst Wang Tao. – Reuters




Tags: Brent | Singapore | Interest rates | US Federal Reserve |

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