Brent, US oil up on China data, EU optimism

LONDON: Brent crude oil rose above $110 a barrel on Monday after stronger Chinese manufacturing data suggested the world economy would avoid a double-dip recession, supporting fuel consumption and outweighing fears over weak European data.

China's vast manufacturing sector picked up in October, snapping a three-month contraction and underscoring the resilience of the world's second-largest economy and top energy consumer, according to HSBC's China Flash Purchasing Managers' Index.

The PMI data, which rose to 51.1 in October from September's 49.9, soothed investor fears of an abrupt slowdown in China's economy that could send an already fragile world economy into recession.

"The Chinese PMI number is better than expected and that is one of the main reasons for the rise," Christophe Barret of Credit Agricole said. "Prices are volatile so the price could be corrected later in the day."

"There is still much uncertainty around talks for a solution to the euro zone debt crisis and we are waiting for something more clear to emerge from the meetings," he added.

Strong Chinese data outweighed European growth fears as the European private sector tipped further into decline in October, according to business surveys on Monday that showed the bloc's economy is in serious danger of lurching from stagnation into outright recession.

Brent crude was up 58 cents at $110.14 a barrel by 1047 GMT, down from an intraday high at $110.94 a barrel.

Brent prices have risen by about 16 percent so far this year, and are heading for a third straight year of gains.

US crude rose 42 cents to $87.82 a barrel, after reaching an intraday high of $88.65 a barrel.

EU OPTIMISM

Investors were also encouraged by signs that a summit of euro zone leaders on Wednesday could produce a solution to the euro zone debt crisis, although sharp differences remain over the size of losses private holders of Greek government bonds will have to accept.

"It seems that despite recent prices the market seems to think that there is going to be some kind of agreement on the euro zone debt crisis," Roy Jordan of Facts Energy Global said. "What we are seeing is that if the market is satisfied with the agreement then the price will have an upward spike."

European shares rose in early trade on Monday on optimism that policymakers were closer to an agreement on measures to tackle the euro zone sovereign debt crisis.

By 1222 GMT, the FTSEurofirst 300 index of top European shares was flat, down just 0.07 percent 977.44 points, after rising 2.5 percent on Friday.

The Brent-WTI spreads were at $22.16, down from record high levels of $27.88 at the Oct. 14 close.

Global stock markets rose on Monday and the euro gave back some of the gains it made last week, while traders waited for final details of a euro zone debt deal expected to be unveiled later this week.

DOWNWARDS PRESSURE

"There is downward pressure on hopes the Forties field has stabilised, which was losing supply that had supported Brent," Jordan said. "Our view is that overall the outlook is for low prices but also for a spike in the prices later."

North Sea Forties crude differentials rose on Friday from their lowest level in more than two months as demand increased.

The market also weighed news of the death of Saudi Arabia's Crown Prince Sultan, with analysts saying it was not expected to affect the oil market.

Prince Sultan, who had been heir to the Saudi king since 2006 and defence and aviation minister since 1962, died of colon cancer in New York on Saturday.

In Yemen, gunfire and shelling in the country's capital, Sanaa, killed two people on Sunday, medics said, two days after the United Nations issued a resolution condemning the violence and urging President Ali Abdullah Saleh to step down.

The post-Gadaffi era could put further downward pressure on oil prices as foreign companies repatriate staff to repair damaged oil fields securing the supply of Libyan crude to the international market, while some estimates say production could reach 600,000 bpd by the end of the year, according to a report from PVM Oil Associates.

Copyright Reuters, 2011