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Markets

Oil above $123 on economy hopes, Iran concern

LONDON: Oil rose above $123 a barrel on Thursday as upbeat economic data from China and the United States bolstered the
01 Mar 2012

 LONDON: Oil rose above $123 a barrel on Thursday as upbeat economic data from China and the United States bolstered the demand outlook and concern persisted about supply disruption from Iran.

A Chinese government survey showed factories' output grew more than expected in February. New US claims for jobless benefits edged down last week, following on from a report on Wednesday showing the US economy grew faster than initially thought in the fourth quarter.

Brent crude rose 90 cents to $123.56 a barrel by 1508 GMT, rebounding from an earlier decline to as low as $122.49 and a dip to $120.50 on Wednesday. US oil was up 46 cents to $107.53.

"The sell-off yesterday may have marked the bottom," said Christopher Bellew, a broker at Jefferies Bache in London.

"The existing supply-side disruptions and risk of them getting worse are supporting prices - Iran and the continuing conflict in Syria."

Oil held onto its gains after a US government report said new claims for unemployment benefits edged down last week, holding near a four-year low, suggesting the labour market was gaining momentum.

Brent posted a monthly gain of 10.5 percent in February and reached $125.55, its highest intraday price since May 2, on Friday, supported by growing tension between the West and Iran over its nuclear work and concern about cuts in its oil supply.

Prices fell earlier this week as technical indicators such as the relative strength index for Brent suggested the rise was overdone. Some participants still see signs that the rally is fragile.

"Technically, crude oil was saved in the last five minutes of the session but it still leaves crude oil in the danger zone given that it made lower highs and lower lows yesterday," said Olivier Jakob, analyst at Petromatrix.

Supplies from Iran, the second-largest OPEC producer after Saudi Arabia, remain the key risk for the global market.

A US government report said on Wednesday Western sanctions on Iran were already disrupting its oil exports, and further restrictions could tighten global oil markets.

US and European insurance companies are declining to insure deliveries of Iranian oil even before the full Western sanctions go into effect, according to the report by the Energy Information Administration on Wednesday.

The risk of future disruption to supplies from Iran has pushed signs that actual output is ample, such as rising output from the Organization of the Petroleum Exporting Countries, onto the back burner.

US crude oil stockpiles rose 4.16 million barrels last week, the EIA reported on Wednesday, a bigger increase than analysts expected which pressured US crude.

Copyright Reuters, 2012