Oil climbs above $114 on demand hopes

Brent crude climbed above $114 today, buoyed by hopes of higher demand in the months ahead and tighter US inventories, but concerns about moderating economic growth in China and euro zone debt woes kept a lid on gains.

ICE Brent crude climbed 67 cents to $114.28 a barrel by 0629 GMT. The benchmark rose more than $2 yesterday, its first gain in three sessions. US crude was at $97.76 a barrel, up 87 cents.

Soft manufacturing data from China and ongoing worries about Europe's economy have weighed on sentiment, but the prospect of tightening global oil supplies propelled Brent oil to a two-week high yesterday.

"We expect strong demand growth in China, India, Saudi Arabia and Brazil, while non-Opec supply increases are unlikely to keep up," said Chen Xinyi, a commodities analyst with Barclays Capital. "Our demand forecast for China already takes into account the moderation in GDP growth in 2012."

Barclays Capital raised its 2012 forecast for Brent by $10 to $115 per barrel, and upgraded its 2012 forecast for US crude by $4 to $110. The bank left its Brent forecast for 2011 at $112 but cut its US crude 2011 forecast by $6 to $100.

Citigroup said Brent will fall to $90 a barrel by September because of the International Energy Agency's move to release oil reserves and an increase in Saudi Arabia's production, before bouncing for the longer term.

However, Asian refiners may skip taking extra volumes of crude being offered by top exporter Saudi Arabia as the kingdom failed to cut prices deeply enough to lure buyers.

The Saudis have effectively signalled that they believe the market is well supplied at current prices and they see no need to offer bigger discounts, said Clyde Russell, a Reuters market analyst.

The oversubscribed sale of US crude reserves last week also had oil analysts and investors assessing whether it reflected tighter global oil supplies than recent assessments.

Crude oil inventories in top consumer United States are expected to have dropped last week for a fifth straight time, according to a Reuters poll. Industry group American Petroleum Institute will release its weekly report later in the day, while the US Energy Information Administration will issue its own data tomorrow.

Brent is expected to trade between $112.40 to $114.48 per barrel for one trading session before resuming its rally, while US crude will consolidate between $96.28 and $97.48 before heading towards $100 a barrel, according to technical analyses by Reuters market analyst Wang Tao.

Renewed euro zone debt worries after Moody's slashed Portugal's credit rating into junk territory, however, were keeping a cap on oil prices. Moody's said there was a great risk the country will need a second round of financing before it can return to capital markets.

In the Middle East, violence and unrest in Yemen and Iraq continues to provide a supportive geopolitical premium as a factor lifting oil prices, analysts said.

Reuters