Brent bounces on Fed hopes, gains fragile

LONDON: Brent crude bounced on Wednesday after three days of losses, supported by hopes that the Federal Reserve may hint at more measures to boost the US economy, though it was seen vulnerable to more euro zone debt worries.

Brent crude was up 88 cents at $110.42 a barrel by 0920 GMT. Brent prices rose 6.6 percent last month.

US crude on the New York Mercantile Exchange was up 71 cents, or 0.28 percent, to $92.90 a barrel.

The US Federal Open Market Committee, which concludes its two-day policy meeting on Wednesday, may offer hints of further monetary easing to revive the US economic recovery, which would pressurise the dollar.

This provided support for demand sensitive assets like oil, which benefits as the dollar weakens as it becomes more affordable to holders of other currencies.

However investors were wary about the sustainability of the gains, with weak data and festering euro zone debt problems seen as weighing on markets.

"Markets are taking stock, I think there's just a little bit of profit taking after the losses in recent days, but problems in Greece could well knock markets again," said Michael Hewson, analyst at CMC Markets.

Greece's prime minister George Papandreou won the backing of his cabinet on Wednesday to hold a referendum on a 130 billion euro bailout package, a decision that had sent markets into a tailspin in the previous sessions.

Papandreou will later face the leaders of France and Germany, who summoned him for crisis talks in Cannes, before a G20 summit of major world economies, to push for quick implementation of the bailout deal.

MANUFACTURING WEAK

Adding to the gloomy newsflow, the downturn in euro zone manufacturing in October was even deeper than previously reported, according to business surveys on Wednesday that showed how severely the currency union's debt crisis has choked new factory orders.

This followed data on Tuesday showing slower manufacturing activity in China and the United States, the world's largest oil consumers.

"Greece's referendum plan has introduced a new level of uncertainty over the EU debt crisis," said Nader Naeimi, a strategist at AMP Capital Investors Ltd in Sydney.

"And you have worries about a weakening China, a really heavy consumer of commodities."

Investors were also watching for any fallout from Monday's bankruptcy filing by brokerage MF Global Holdings Ltd following the discovery that the company failed to protect customer accounts by keeping them separate from its own funds.

US weekly crude inventory data scheduled for later on Wednesday may show an increase in the country's commercial crude stocks for a second consecutive week, a Reuters poll of analysts showed on Tuesday.

But the industry group American Petroleum Institute, in a report late on Tuesday, said domestic crude inventories fell 156,000 barrels last week.

A fall in surplus crude at Cushing, Oklahoma, the pricing point for West Texas Intermediate crude, will narrow the price spread between US crude futures and ICE Brent in the next 12 months, Goldman Sachs said.

Copyright Reuters, 2011