London: Brent crude oil prices rose towards USD 113 a barrel on Thursday, after sharp falls a day earlier, as rallying equities and an unexpected drop in US oil stocks cheered investors despite the spreading euro zone crisis.
Brent crude rose by 18 cents to USD 112.49 a barrel by 1548 GMT, having fallen nearly USD 3 the previous day.
The US crude contract made stronger gains and was up 91 cents at USD 96.65 a barrel by the same time, narrowing the spread between the two contracts to around USD 16.
US data showed new claims for unemployment benefits declined for a second straight week to the lowest since April, boosting US stocks and weighing on the dollar. A weak dollar makes oil more expensive for buyers using the US currency.
"I think oil continues to move in line with the stock market and the exchange rate, so given that stocks are up and the dollar is down, that's why oil prices are at these levels," said Commerzbank analyst Carsten Fritsch.
"Adding to that is the bullish US inventories report...with market sentiment more constructive today, these statistics are helping."
US crude and oil products fell last week, with distillate stocks plunging more than 6 million barrels, the US Energy Information Administration data showed on Wednesday.
Chinese trade data showed resilient domestic demand, helping lift sentiment. The world's second-biggest oil consumer imported 20.80 million tonnes of crude in October, up 1.7 percent from September.
Euro Zone Troubles
Signs of robust demand in the world's top oil consumers the US and China was enough to temporarily dim concerns about the spread of the European debt crisis to Italy and the impact it could have on demand.
"There is enough demand for oil in the world from places like China and the developing world that the euro zone is not of overriding importance," said Jefferies Bache oil broker Christopher Bellew, adding that he thought the market was in a new trading range between USD 112-USD 116 a barrel.
The grim economic prospects, combined with high oil prices, prompted the West's energy watchdog the International Energy Agency on Thursday to cut its world oil demand forecast this year and next.
The market continued to weigh the risk of a supply disruption from Iran, as Western leaders called for expanded sanctions against the OPEC member over a UN watchdog report that it has worked to design atom bombs.
Worries over sanctions on Iran, or even an attack on Tehran's nuclear operations, has caused the backwardation or premium for prompt Brent crude over forward prices to narrow.
First Published: Thursday, November 10, 2011, 23:31