UPDATE 6-Oil up over $115 boosted by central bank action

Thu Sep 15, 2011 10:10am EDT

* Fundamentals, financial outlook point to lower prices

* Short covering ahead of expiry supports Brent (Adds quotes, central bank buying, updates prices)

By Claire Milhench

LONDON, Sept 15 (Reuters) - Oil traded at over $115 on Thursday, boosted by reports of fresh liquidity injections by central banks in the fourth quarter, a weaker dollar and short covering ahead of the Brent contract's expiry.

The European Central Bank said it had decided, in conjunction with the U.S. Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, to conduct three U.S. dollar liquidity-providing operations in the last three months of the year.

The move helped the market shrug off a raft of bearish data from the United States, including higher-than-expected weekly jobless claims and a contraction in New York state manufacturing for the fourth month in a row.

Brent crude LCOc1 for October, which expires today, was up $2.72 at $115.12 by 1345 GMT. The November contract LCOc2 was up $2.94 at $112.59. U.S. crude CLc1 was up 59 cents to $89.50 a barrel.

ICE gasoil was leading the market, however, up 3.39 percent at $953.25 a tonne, with the October/November backwardation widening out to $4.25.

The oil market is taking some support from European stocks , which rose on Thursday as backing for Greece and a smooth debt auction in Spain soothed investor fears over the fate of the euro zone .

"A level of short term or temporary stability seems to be arising around Europe," said Dominick Chirichella an analyst at the Energy Management Institute. "The fact that the bottom is not falling out in Europe has resulted in a multiday short covering or relief rally in equities as well as the euro."

Other analysts suggested that short covering so close to resistance levels would bring day traders in to push the market higher too.

Volatility in Brent has been accentuated by the imminent expiry of the October contract, with the liquidity now all in the November contract.

From a fundamental perspective, Brent has been supported by reports that shipments of North Sea Forties crude oil are likely to be further delayed following lower-than-expected production at Nexen's Buzzard oil field .

A weaker dollar is also helping, with the U.S. currency down 0.66 percent against a basket of currencies by 1344 GMT. A weaker dollar makes oil cheaper for those using other currencies.

DEBT CRISIS

But analysts said the upside in crude would be fairly limited until the Eurozone crisis plays out.

World Bank President Robert Zoellick said on Wednesday the world had entered a new economic danger zone and Europe, Japan and the United States all needed to make hard decisions to avoid dragging down the global economy.

"The market at some point will have to come to the conclusion that the growth prospects which have been priced into Brent are unrealistic," said Eugen Weinberg, an analyst at Commerzbank.

"The U.S. Federal Reserve meeting next week is unlikely to bring a new round of quantitative easing in the form of direct Treasury purchases."

Europe's finance ministers have been warned confidentially of the danger of a renewed credit crunch as a "systemic" crisis in euro zone sovereign debt spills over to banks.

Swiss bank UBS was under pressure after it said a trader had lost it around $2 billion in unauthorised deals, and police in London arrested 31-year-old Kweku Adoboli in connection with the case.

(Additional reporting by Alejandro Barbajosa in Singapore; Editing by William Hardy)

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