Brent climbs above $106 as Fed shows confidence in US economy

Thu Mar 20, 2014 12:04am EDT

Related Topics

* Fed will probably end commodity-friendly stimulus program this fall

* U.S. stockpiles rise more than expected; fall at Cushing pricing hub

* Investors watching U.S., EU sanctions against Russia

By Jacob Gronholt-Pedersen

SINGAPORE, March 20 (Reuters) - Brent crude rose above $106 a barrel on Thursday after the U.S. Federal Reserve signalled interest rates could rise next year, indicating strength in the world's largest economy and top oil consumer, while geopolitical tensions also underpinned prices.

In comments that sent stocks and bonds tumbling, Fed Chair Janet Yellen on Wednesday said the bank will probably end its massive bond-buying program this fall, and could start raising interest rates around six months later.

While scaling back of the central bank's commodity-friendly stimulus has been viewed as a drain of liquidity, the latest outlook is being seen by market participants as underscoring confidence in the U.S. economy.

"The consensus is now that the winding down of easy money is happening because the economy is strong enough to stand on its own two feet," said Mark Keenan, head of commodities research in Asia at Societe Generale.

"I think investors take a degree of confidence from Yellen's comments. And while still fragile, there is a prospect of real economic growth, which will underpin commodities, including oil," Keenan said.

Brent was up 27 cents at $106.12 per barrel by 0358 GMT, after settling 94 cents lower.

U.S. crude traded 34 cents higher at $100.71 per barrel. The contract, which expires on Friday, had closed 67 cents higher on Wednesday after data showed a fall in crude inventories at the Cushing, Oklahoma, pricing hub.

Crude stocks at Cushing fell 989,000 barrels last week as a TransCanada Corp pipeline continued to drain oil to the Gulf Coast, where stocks rose 4.7 million barrels to the highest level yet this year, the data from the U.S. Energy Information Administration (EIA) showed.

Total oil stockpiles in the United States soared nearly 6 million barrels, more than double forecasts, as refinery utilization rates fell to the lowest levels in nearly a year.

GEOPOLITICAL TENSIONS

Oil prices also drew support from tensions in Ukraine and Russia, the world's biggest oil producer.

The United States warned Moscow it was on a "dark path" to isolation on Wednesday as Russian troops seized two Ukrainian naval bases, including a headquarters in the Crimean port of Sevastopol.

The dramatic seizure came as Russia and the West dug in for a long confrontation over Moscow's annexation of Crimea, with the United States and Europe groping for ways to increase pressure on a defiant Russian President Vladimir Putin.

Oil price gains were, however, checked as the dollar firmed after comments from Fed's Yellen prompted markets to bring forward interest rate hike expectations.

A strong dollar makes commodities priced in the greenback expensive for holders of other currencies.

Societe Generale has cut its 2014 price forecast for crude oil on Wednesday, saying prices have underperformed despite strong fundamentals.

Societe Generale cut price targets for Brent to $106 per barrel from $108 and for U.S. crude to $96 per barrel from $99. (Editing by Himani Sarkar)

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