SINGAPORE: Brent crude rose above $119 on Thursday on worries about supply disruptions from the Middle East and after US data showed an unexpected fall in inventories, while fears of a delay in a second bailout package for Greece capped gains.
Prices rose to a six-month high on Wednesday after sanctions-hit Iran proclaimed advances in nuclear know-how, including new centrifuges able to enrich uranium much faster, a move that may heighten tensions with the West.
Brent crude gained 12 cents to $119.05 a barrel by 0733 GMT, after settling at $118.93. US crude slipped 27 cents to $101.53, while the premium of the European benchmark over US crude rose above $17.
"The volatility in risk assets, concerns of supply in the Middle East, and drawdown of US crude inventories are all putting a floor on oil prices," said Ben Le Brun, market analyst at OptionsXpress. "Tensions in Iran will always be supportive of oil prices regardless of growth concerns."
STOCKS DRAW DOWN
Additional support for oil prices came from the United States, after data showed a surprising drop of 171,000 barrels in crude oil stockpiles last week, against a forecast for a 1.5 million-barrel increase.
Crude stocks held at the Cushing, Oklahoma, delivery hub for US-traded crude oil futures rose to their highest level since September, posting a 2 million-barrel build, the biggest weekly increase since December 2009.
The current tightness in oil fundamentals is being underestimated and the non-OPEC supply for this year could grow by just 0.37 million barrels per day (bpd), instead of the 1 million bpd market expectations, analysts at Barclays said.
"While OPEC crude oil output has reached near three-year highs of 31 million bpd, supplies have been crippled in the former-Sudan, Yemen and Syria, the combined output of which normally totals almost 1.2 million bpd," they said in a report dated Wednesday.
Technical problems at the North Sea's Buzzard field and structural declines in British production continue, compounding supply shortfalls, Barclays said.
Gains were, however, capped due to worries that Greece's debt crisis will worsen and hurt the global economy. Asian shares, the euro and copper, all lost ground as policymakers failed to arrive at a decision over a second bailout package for Athens.
"The postponement of another EU bail out decision is hampering today's markets, with no answer on Greece, we continue to exist in no-man's land," said Ben Taylor, sales trader at CMC Markets, said in a report.
WEAK OUTLOOK
Higher oil prices could be detrimental to the global economy, which already shows signs of weakening, analysts said.
Latest data shows that China drew $10 billion in foreign direct investment, down 0.3 percent from a year earlier for the third consecutive month of annual declines, as a shaky world economy sapped inflows.
Ratings agency Moody's warned on Thursday it may cut the credit ratings of 17 global and 114 European financial institutions in another sign the impact of the euro zone government debt crisis is spreading throughout the global financial system.
"It's getting to a stage where we begin to wonder when will the escalating prices start to have a downside effect on the global economy," said Le Brun. "When Nymex crude prices hit $110, it will start to have a serious effect on the economy."
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