Brent crude rises on tighter supply prospects

SINGAPORE: Brent crude edged up on Wednesday, rising for a second straight session on expectations of higher demand in the months ahead and tighter US inventories, but concerns about moderating economic growth in China and euro zone debt woes kept a lid on gains.

ICE Brent crude climbed 27 cents to $113.88 a barrel by 0311 GMT. The benchmark rose more than $2 on Tuesday, its first gain in three sessions. US crude was at $97.39 a barrel, up 50 cents.

Soft manufacturing data from China and ongoing worries about Europe's economy have weighed on sentiment, but the prospect of tightening global oil supplies propelled Brent oil to a two-week high on Tuesday.

"We expect strong demand growth in China, India,?Saudi Arabia and Brazil, while non-OPEC supply increases are?unlikely to keep up," said Chen Xinyi, a commodities analyst with Barclays Capital. "Our demand forecast for China already takes into account the moderation in GDP growth in 2012."

Barclays Capital raised its 2012 forecast for Brent by $10 to $115 per barrel, and upgraded its 2012 forecast for US crude by $4 to $110. The bank left its Brent forecast for 2011 at $112 but cut its US crude 2011 forecast by $6 to $100.

Citigroup said Brent will fall to $90 a barrel by September because of the International Energy Agency's move to release oil reserves and an increase in Saudi Arabia's production, before bouncing for the longer term.

However, an unexpectedly mild reduction in Saudi official selling prices may make it difficult for the world's biggest exporter to boost shipments further.

The oversubscribed sale of US crude reserves last week also had oil analysts and investors assessing whether it reflected tighter global oil supplies than recent assessments.

Crude oil inventories in top consumer United States are expected to have dropped last week for a fifth straight time, according to a Reuters poll. Industry group American Petroleum Institute will release its weekly report later in the day, while the US Energy Information Administration will issue its own data on Thursday.

Brent is expected to trade between $112.40 to $114.48 per barrel for one trading session before resuming its rally, while US crude will consolidate between $96.28 and $97.48 before heading towards $100 a barrel, according to technical analyses by Reuters market analyst Wang Tao.

Renewed euro zone debt worries after Moody's slashed Portugal's credit rating into junk territory, however, were keeping a cap on oil prices.

Moody's said there was a great risk the country will need a second round of financing before it can return to capital markets.

Moody's also warned that its credit outlook on Chinese banks may turn negative as China's local government debt may be understated by as much 3.5 trillion yuan ($540 billion).

In the Middle East, violence and unrest in Yemen and Iraq continues to provide a supportive geopolitical premium as a factor lifting oil prices, analysts said.

Copyright Reuters, 2011