Brent crude rises toward $110

Brent crude rose toward $110 a barrel this morning, recouping some of the previous session’s sharp losses, as data from China reaffirmed signs of stabilising growth and fuel demand in the world’s second-largest oil consumer.

China’s implied oil demand rose 1.5 per cent in November to about 9.94 million barrels per day (bpd) from October and was the highest level in five months, according to calculations based on preliminary government data.

Brent crude for January gained 50 cents to $109.89 a barrel by 06.35 GMT, after a 2 per cent drop on Monday, its biggest daily loss since November 1 when it fell 2.7 per cent.

US crude futures for January delivery were at $97.69 a barrel, up 35 cents, after its first decline in seven sessions yesterday.

"If you look at the sequential growth, China's oil demand is stabilising," said Sijin Cheng, analyst at Barclays Capital. The end of maintenance at a major southern refinery and tighter diesel supply could point to higher crude runs in December, she said.

Chinese government reforms are expected to support demand for commodities such as energy and metals, said Mark Keenan, a commodities strategist at Societe Generale in Singapore.

Brent was also underpinned by persistently low output at Libya at 250,000 barrels per day (bpd), down from 1.4 million bpd in 2012. Blockades of the eastern terminals and intermittent disruptions in the west could cap output at 800,000 bpd in 2014, Adam Longson, a commodities strategist at Morgan Stanley, wrote in a note.

Yesterday, Brent posted its biggest daily percentage drop in nearly six weeks following weak economic data from Germany.

Traders also sold Brent to unwind bets on its spread with West Texas Intermediate (WTI) crude as a new pipeline and year-end crude stock drawdowns could reduce supply at WTI’s delivery point in Cushing, Oklahoma.

“Closer to the Brent market, the German data has highlighted a reasonably disjointed recovery within Europe,” Mr Keenan of Societe Generale said. “Hence, we saw a pretty strong move yesterday combined with the reduction in speculative activity on Brent-WTI spread.”

Brent’s premium to WTI has narrowed about $7 in nearly two weeks as TransCanada Corp has begun filling a 700,000 barrel-per-day pipeline, which will transport crude from Cushing to Gulf Coast refiners.

“The inventories within Cushing and the landlocked pricing region can be drained quicker. That has stimulated the liquidation of that spread which entails selling Brent and buying WTI,” Mr Keenan said.

Reuters