SINGAPORE — Brent crude rose slightly towards $118 a barrel on Monday, underpinned by expectation of improving global growth despite some weak US data damping prices at the end of last week.
Tension in the Middle East also lent support.
US economic data on Friday suggested the world’s largest oil consumer hit a bump on its road to recovery in January, with industrial production falling and manufacturing off to a weak start. But a rebound in factory activity in New York State in February may indicate any setback would be temporary.
"The US economy is still heading to an upside and it should support the global economy and equity markets," said Tetsu Emori, a commodities fund manager at Astmax Investments in Tokyo.
"The Chinese should be back in market this week and its economy is also heading to an upside that should support commodities."
Brent crude edged up 12c to $117.78 a barrel by 5.21am GMT after posting its first weekly loss since the first half of January. US crude slipped 23c to $95.63 following a small gain last week. Oil trading volumes are likely to be lean with US investors away for a public holiday.
In the Middle East, sanctions on Iran are still curbing supply from the third-largest Organisation of Petroleum Exporting Countries (Opec) producer.
Talks between Iran and major world powers on Tehran’s nuclear programme remained deadlocked and investors are looking ahead to another meeting on February 26 for any signs of progress.
Major powers planned to offer an easing of sanctions on trading in gold and other precious metals with Iran, in return for Iranian steps to shut down the nation’s newly expanded Fordow uranium enrichment plant, Western officials told Reuters.
US sanctions that came into effect on February 6 are killing Turkey’s gold-for-gas trade with Iran and have stopped state-owned lender Halkbank from processing other nations’ energy payments to the Opec oil producer.
A sharp cut in Saudi Arabia’s crude output has also supported Brent. Exports from the world’s top crude oil exporter fell for the third month running in December, but the fall in shipments was less dramatic than the drop in oil production, official data showed.
"Demand optimism has been met with supply concern as early Opec supply surveys suggest Saudi Arabia cut back production potentially by too much and too quickly," Soozhana Choi, analyst at Deutsche Bank, said in a note.
If China’s oil demand growth averaged at 7% in the first quarter, this implied Opec would need to reduce supply by about 700,000 barrels a day in the quarter from the fourth quarter of 2012, rather than the 1-million barrels a day estimated by the International Energy Agency (IEA), Ms Choi said.
The optimism was evident in the US, where money managers raised their net long US crude futures and options positions in the week to February 12, the US Commodity Futures Trading Commission (CFTC) said. US housing data due this week could provide more cues on the country’s economic health.
In Asia, the economic outlook in Japan, the world’s third-largest oil consumer, is brightening. The country’s expansive policies, which have driven down the yen, escaped direct criticism in a G-20 meeting, and on Monday Japanese shares rallied and the yen continued to fall.
Yet further nuclear tests in North Korea could ratchet up geopolitical tension in North Asia and roil markets.
"North Korea is another headache as far as risk in Asia is concerned," Mr Emori said.
