SINGAPORE: Oil rose on Wednesday, supported by hopes of a US debt deal, a weakening dollar against the euro and tightening crude stocks in the world's largest oil consumer.
Brent crude climbed 59 cents to $117.65 a barrel by 0406 GMT, adding to gains of more than a dollar in the previous session. US crude for August delivery, which expires at the end of trading on Wednesday, jumped 67 cents to $98.17 a barrel.
"Any positive news on either the US debt ceiling and the Greek second bailout will push up the market," said Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp.
"Traders are just waiting for some confirmation that things are progressing so they can put these two economic issues behind them."
According to technical charts, Brent must rise past $120 to break through its current tight trading range, while US oil may continue to rise towards $100.59, Reuters analyst Wang Tao said.
A group of Democratic and Republican senators offered an ambitious plan on Tuesday that could revive stalled US debt talks and the prospect of a long-term deficit reduction deal to avert a default by the United States.
With just two weeks left until the federal government runs out of money to pay all of its bill, President Barack Obama seized on the plan by the so-called Gang of Six as a "very significant step" and urged congressional leaders to start discussing it.
On the other side of the Atlantic, German Chancellor Angela Merkel doused expectations of any comprehensive solution to Greece's debt crisis at an emergency euro zone summit on Thursday, saying "further steps will be necessary and not just one spectacular event which solves everything."
Despite the bleak outlook, investors remained hopeful policymakers would eventually reach a deal to provide further aid for Greece, helping to lift the euro against the dollar.
"While in the short-term, all eyes are on relative currency shifts, the economic fallout from an ineffective deal in either country is the real market risk issue," said analysts at J.P. Morgan in a research note.
US STOCKS DATA
Oil also found support from a larger-than-anticipated drop in US crude inventories and expectations that the International Energy Agency will not tap into more of its emergency reserves.
Industry group American Petroleum Institute reported a 5.2 million barrel drop in domestic crude stocks, surpassing expectations for a 1.7 million barrel fall, as refinery runs rose.
The US Energy Information Administration will issue its own weekly data later on Wednesday.
IEA's executive director said the agency has yet to decide whether another release from emergency stocks was needed, although the French energy minister said there were no plans for another release.
The IEA's decision to release 60 million barrels from emergency stockpiles last month took energy traders by surprise and briefly rattled oil markets.
Analysts suspect the shock action may have contributed to the massive drop in second quarter trading profits reported by Goldman Sachs , long renowned as one of the largest and savviest commodity derivatives traders.
Goldman said on Tuesday it had "significantly lower results" in its commodities and mortgage businesses, even after its own analysts correctly called for a pull-back in prices.
Copyright Reuters, 2011