Brent crude held steady above $108 (€83.48) a barrel this morning trade as Chinese manufacturing data pointed to a better fuel demand outlook in the world's second largest oil user, offsetting lingering worries about contagion in the euro zone from Cyprus's woes.
Oil held onto gains made in the previous session after data showed growth in China's vast manufacturing sector picked up in March, implying that the second largest economy is still on track for gradual growth recovery. The data also pushed Asian equities and base metals higher.
Brent crude for May delivery edged down 16 cents to $108.56 a barrel in early morning trade. US crude for May was at $93.12, down 38 cents.
China's manufacturing sector growth in March, as shown in a preliminary survey of factory managers today, pointed towards solid but not spectacular first-quarter growth in the world's second-largest economy.
The HSBC Purchasing Managers' Index for March revived to 51.7 in March from 50.4 in February, but remained below a two-year high of 52.3 reached at the beginning of the year.
In the euro zone, Cyprus continued to put investors on edge as it scrambled to avert a meltdown. The Mediterranean island is considering nationalising pension funds and ordered banks to stay shut till next week after it rejected the terms of a European Union bailout and turned to Russia for aid.
Barclays analyst Kevin Norrish said commodities have lagged a long way behind the performance of other risk assets.
"Current commodity market positioning looks stretched to the short side, but any rebound in the second quarter is likely to be limited by a stronger dollar plus accelerating supply growth in markets such as crude oil and copper," he said in a note.
A strong dollar makes commodities priced in the currency more expensive to international buyers, and they usually slow their purchases when the dollar rises.
Still, the US Federal Reserve's pledge to continue efforts to stimulate the world's largest economy helped to lift oil prices yesterday after two straight drops on Cyprus worries.
In the United States, oil production is set to surpass the amount of crude the country imports for the first time since 1995 later this year, the Energy Information Administration said on Wednesday.
An oil production boom from shale or tight oil unleashed by advances in horizontal drilling and hydraulic fracturing - known as fracking - is expected to raise US output to top 8 million barrels per day (bpd) by the end of 2014, the highest since 1988, the EIA said.
US crude inventories also drew down for the first in nine weeks as imports fell, weekly data showed.
Stockpiles dropped by a surprise 1.31 million barrels in the week to March 15th, compared with analysts' expectations for a rise of 2 million barrels.
Reuters
