UPDATE 2-Brent holds steady near $113 on Bernanke assurance; EU woes weigh

Wed Feb 27, 2013 2:53am EST

Related Topics

* Bernanke says Fed stimulus benefits clear, downplays risks

* Asian shares, base metals rise after Fed reassures on easing

* U.S. crude oil inventories rise, refined products fall -

* Coming Up: EIA petroleum status report; 1530 GMT (Updates prices)

By Manash Goswami

SINGAPORE, Feb 27 (Reuters) - Brent futures held near $113 a barrel on Wednesday after the U.S. Federal Reserve's affirmation of its commitment to monetary stimulus renewed hopes of a revival in demand growth in the world's biggest oil consumer.

Chairman Ben Bernanke's strong defence of the Fed's bond-buying stimulus before Congress and a spike in U.S. home sales boosted Asian shares, base metals and other riskier assets. Concerns over spending cuts in the United States and prolonged instability in Europe as elections in Italy failed to produce a strong government kept a lid on prices.

Brent crude gained 38 cents to $113.09 a barrel by 0733 GMT, after rising to as much as $113.14. The contract hit a session low of $112.41 a barrel on Tuesday, its weakest since Jan. 24, and settled down $1.73.

U.S. oil gained 27 cents to $92.90, after ending 48 cents lower on Tuesday.

"We did get some positive statements from the United States overnight," said Ric Spooner, chief market analyst at CMC Markets. "But as we get close to the end of the month, there is uncertainty over the spending cuts and there are concerns over Europe's growth. All these factors will weigh on oil prices."

Bernanke said Fed policymakers are cognizant of potential risks from their extraordinary support for the economy, including the possibility it might fuel unwanted inflation or stoke asset bubbles. But the risks did not seem material at the moment, he said, adding the central bank has all the tools it needs to retreat from its monetary support.

Markets were also buoyed by data showing U.S. home prices closed out 2012 with the biggest annual gain in more than six years, while sales of new homes spiked in January, the latest sign that the long-suffering housing market was on the mend.

"Potentially further losses in U.S. crude prices were pared back following better-than-expected U.S. data towards the end of the session," analysts at ANZ said in a report.

DEMAND OUTLOOK

After Bernanke's testimony, investor attention is shifting back to the impending spending cuts in the United States as Republicans and the White House have failed so far to reach an agreement.

Republicans want to replace the across-the-board sequester cuts by finding other more-targeted spending reductions. Congressional Democrats have put forward a $110 billion plan that includes not only spending cuts but also tax increases, which are opposed by Republicans.

Bernanke urged lawmakers to avoid sharp spending cuts set to take effect on Friday, warning that they could combine with earlier tax increases to create a "significant headwind" for the modest economic recovery.

"Even if there is no agreement, the U.S. can probably wing it for another month or so without any material damage," Spooner said. "But the end result will be further fiscal tightening and that will be potentially negative for the United States."

In Europe, a political stalemate in Italy could halt reforms needed to spur growth and help the country cut its massive 2 trillion euro debt pile. Italy is facing a political crisis as the vote cast over the weekend gave none of the political parties a parliamentary majority.

A bearish target at $111.97 remains unchanged for Brent as indicated by its wave pattern and a Fibonacci ratio analysis, according to Reuters technical analyst Wang Tao. A bearish target of $91.15 is also unchanged for U.S. oil.

SUPPLY

Oil, particularly the U.S. contract, drew some support as American Petroleum Institute data showed U.S. crude stockpiles rose less than expected. Stocks rose 904,000 barrels in the week to Feb. 22, the data showed, while analysts had expected a rise of 2.4 million barrels. Official data from the Energy Information Administration (EIA) is due later in the day.

Investors are also awaiting the outcome of talks between world powers and Iran over Tehran's controversial nuclear programme. Concerns over a supply disruption from the Middle East have kept Brent over $100 for most of 2012 and this year.

"So far there is no particular rapprochement. There is an impression that the atmosphere (at talks) is not very good," Russian news agency Interfax quoted a source close to the talks as saying on Wednesday. (Editing by Himani Sarkar and Tom Hogue)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.