Brent above $111, on weak supply, dollar fall

LONDON: Brent crude pushed beyond $111 on Wednesday, helped by tight supply and a weak dollar, shrugging off demand forecast cuts from the IEA and OPEC.

Brent crude for November was up 31 cents at $111.04 by 0903 GMT. US crude on the New York Mercantile Exchange was up 9 cents to $85.90 a barrel.

Brent crude has been supported by refinery run cuts around Europe, and by outages at North Sea fields.

Crude prices were helped by weakness in the dollar, which fell 1 percent against the euro. Oil tends to be negatively correlated against the dollar, as a fall in the price makes it more affordable to holders of other currencies.

Oil was up for a sixth session, bouncing from below $100 per barrel last week, as investors have started to become more optimistic that the euro zone's debt crisis may be solved relatively soon.

"It looks like there will be a solution in the euro zone, and demand out of China seems it's holding up well," said Rob Montefusco, analyst at Sucden Financial.

Prices rose, even as the International Energy Agency said that world oil consumption would grow less quickly than expected this year and next, as the pace of economic growth slows.

Fatih Birol, chief economist at the IEA told Reuters on Tuesday, however, that demand from the Middle East and China is still very strong.

On Tuesday, OPEC cut its global oil demand growth forecast for a fourth consecutive month, citing the downturn in developed countries and efforts by China and India to curb fuel use.

The United States is expected to report on Thursday a 700,000-barrel increase in crude oil inventories last week on higher imports and lower refinery utilization rates, which may help to dampen bullish sentiment.

China will release import-export data for September on Thursday, followed by inflation figures.

Crude imports in the world's second-largest oil consumer are expected to rebound in September as new refineries start production and others return from maintenance, but shipments of iron ore and copper -- key barometers of economic activity -- could disappoint.

China's inflation in September may have edged slightly lower although it will still be elevated, highlighting the central bank's policy dilemma.

Shell expects to lift a force majeure on Nigerian Forcados crude by late October or November, if all repair works at a major pipeline go to plan.

The outage pushed up prompt prices, widening the backwardation between November and December Brent by $1 to around $2.80 a barrel from a week ago. Brent's premium to West Texas Intermediate also widened to around $25, up from $23 a week ago.

The steep backwardation will not encourage stock building in the coming weeks and could cause further drawdowns in oil stocks in the United States, J.P. Morgan analysts said in a note.

"Imports should remain low and stocks should continue to draw in the US as a whole, predominantly in the coastal regions, and total US stocks are likely to fall by about 1 million barrels in the reporting week," the bank said.

Copyright Reuters, 2011