UPDATE 2-Brent stable at $118 as euro zone concerns ease

Wed Apr 18, 2012 2:49am EDT

Related Topics

* Brent steady as IMF improves global growth forecast

* Decent Spanish bond sale also boosts sentiment

* Rise in investor confidence in Germany helps

* Coming up: EIA to release inventory data at 1430 GMT

By Jessica Jaganathan

SINGAPORE, April 18 (Reuters) - Brent crude futures held steady above $118 on Wednesday as concerns on the euro zone crisis eased after a successful Spanish debt auction and a better growth forecast from the International Monetary Fund.

The IMF offered a cautiously optimistic view on global growth, which it said is slowly improving as the U.S. recovery gains traction and dangers from Europe recede.

While the euro zone will suffer a mild recession, the IMF said it would be less severe than feared after moves to calm markets at the turn of the year.

Brent June crude slipped one cent to $118.77 a barrel by 0634 GMT, after settling higher at $118.78 in the previous session.

U.S. May crude gained 25 cents to $104.45, after settling at its highest close since April 2. The May contract expires on Friday.

"Traders' risk appetite improved after the successful debt auction, IMF increasing global growth forecast and good data from Germany," said Natalie Robertson, an analyst at ANZ.

"Going forward, the crude market will trade sideways with a potential increase in demand in July once the refineries are back from maintenance."

Spanish bond yields, which have surged in recent days on concerns about the country's economy, eased back as Tuesday's better-than-expected bill sale brightened the mood. Traders held back their optimism, however, as Spain faces a far more significant challenge on Thursday, with the sale of longer-term bonds.

The IMF also appeared to be inching toward a deal on increasing its financial firepower on Tuesday, with Japan, Sweden and Denmark committing a total of $77 billion to help contain the euro zone's debt crisis.

Also boosting sentiment, a survey in Germany, Europe's biggest economy, showed an unexpected rise in analyst and investor confidence in April.

BRENT/WTI SPREAD

Brent's premium to U.S. crude narrowed by 27 cents to $13.87 a barrel as investors continued to price in Monday's news that the Seaway pipeline's crude oil flow will be turned around towards the Gulf Coast as early as mid-May.

This will likely help to alleviate a supply glut in the United States, with crude oil stocks rising more than expected to 3.4 million barrels, a weekly report from industry group the American Petroleum Institute showed.

"I think the market is pricing in the reversal of the pipeline plan on the U.S. crude, while the receding Iranian risk premium is impacting Brent more quickly than WTI," said Robertson.

The EIA will release its own inventory data on Wednesday at 10.30 a.m. EDT (1430 GMT).

MIXED DATA

Improving sentiment for U.S. prices, new permits for home construction surged to their highest level in 3-1/2 years, which could lead to more housing construction in coming months, supporting the economic recovery.

But gains were capped with other data showing that manufacturing output in March slipped for the first time in four months, dropping 0.2 percent, and falling short of analyst expectations.

The IMF cautioned that while the United States is gradually gaining momentum, should the euro zone crisis erupt once more, it could trigger a widespread dumping of risky assets.

The IMF lifted its forecast for the United States to 2.1 percent growth this year, up from 1.8 percent in January. For 2013, it nudged up the forecast to 2.4 percent from 2.2 percent. It sees unemployment this year holding at its current level of 8.2 percent and inching down in 2013 to 7.9 percent.

Latest data out of China showed a slowdown in real estate market, with home prices falling in March from a year ago, triggering concerns among some investors on downward risks for the world's No. 2 economy.

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