Brent climbs above $106 as Fed shows confidence in US economy
Singapore: Brent crude rose on Thursday to hover around $106 a barrel after the U.S. Federal Reserve signalled interest rates could rise next year, indicating strength in the world`s largest economy and top oil consumer, while geopolitical tensions also underpinned prices.
In comments that sent stocks and bonds tumbling, Fed Chair Janet Yellen on Wednesday said the bank would probably end its massive bond-buying program this fall, and could start raising interest rates around six months later.
While scaling back of the central bank`s commodity-friendly stimulus has been viewed as a drain of liquidity, the latest outlook is being seen by market participants as underscoring confidence in the U.S. economy.
"The consensus is now that the winding down of easy money is happening because the economy is strong enough to stand on its own two feet," said Mark Keenan, head of commodities research in Asia at Societe Generale.
"I think investors take a degree of confidence from Yellen`s comments. And while still fragile, there is a prospect of real economic growth, which will underpin commodities, including oil," Keenan said.
Brent was up 19 cents at $106.04 per barrel by 0747 GMT, after settling 94 cents lower.
U.S. crude traded 28 cents higher at $100.65 per barrel. The contract, which expires on Friday, had closed 67 cents higher on Wednesday after data showed a fall in crude inventories at the Cushing, Oklahoma, pricing hub.
Stocks at Cushing fell 989,000 barrels last week, down for a seventh straight week as a TransCanada Corp pipeline continued to drain oil to the Gulf Coast, where stocks rose 4.7 million barrels to the highest level yet this year, data from the U.S. Energy Information Administration showed.
But total U.S. oil stocks rose for a ninth week, soaring nearly 6 million barrels or more than double forecasts as refinery utilization rates fell to the lowest in nearly a year.
"We believe that the previously-ample stocks at Cushing are predominately being moved to - rather than being consumed on - the Gulf Coast, with consequently limited impact on overall crude stocks," BNP Paribas analysts said in a note.
Oil prices also drew support from tensions in Ukraine and Russia, the world`s biggest oil producer.
The United States warned Moscow it was on a "dark path" to isolation on Wednesday as Russian troops seized two Ukrainian naval bases, including a headquarters in the Crimean port of Sevastopol.
The dramatic seizure came as Russia and the West dug in for a long confrontation over Moscow`s annexation of Crimea, with the United States and Europe groping for ways to increase pressure on a defiant Russian President Vladimir Putin.
Oil price gains were, however, checked as the dollar firmed after comments from Fed`s Yellen prompted markets to bring forward interest rate hike expectations.
A strong dollar makes commodities priced in the greenback expensive for holders of other currencies.
Societe Generale has cut its 2014 price forecast for crude oil on Wednesday, saying prices have underperformed despite strong fundamentals.
Societe Generale cut price targets for Brent to $106 per barrel from $108 and for U.S. crude to $96 per barrel from $99.