Brent rises above $110 after best day in two months on demand hopes

Mon Jun 9, 2014 11:14pm EDT

Related Topics

* U.S. crude inventories seen down last week, products build

* China cuts reserve requirement for some banks

* Iran says 6-month extension of nuclear talks may be necessary

* Libya arrives for OPEC meet with exports at a trickle

By Manash Goswami

SINGAPORE, June 10 (Reuters) - Brent futures rose above $110 a barrel on Tuesday, after posting their biggest daily gain in nearly two months in the previous session, on hopes of healthy demand growth from the United States and China - the world's top two oil consumers.

China's central bank cut the level of reserves banks must hold for those that have sizeable loans to the farming sector and small- and medium-sized firms, helping support the economy.

Oil also drew support from expectations of a drop in U.S. crude inventories, signalling healthy consumption as the summer driving season gets underway.

Brent crude added 16 cents to $110.15 a barrel by 0247 GMT, after settling up $1.38, the most since April 14. U.S. oil increased 31 cents to $104.72. It ended $1.75 higher, its biggest daily gain since April 8.

"We are at a critical little juncture for oil markets with both benchmarks trying to push above key trendline resistance. People are getting confident about the global demand outlook," said Ric Spooner, chief market analyst at CMC Markets in Sydney.

"China's rate cut decision is another step towards supporting the domestic economy."

The U.S. benchmark is nearing a key resistance band of between $104.80 and $105.20 a barrel and a break past the top end of the range would signal investor expectations of a solid demand outlook, Spooner said. He pegged support at $100.

For Brent, the first resistance is at $111 a barrel with a floor at $108, he said.

The expected decline in U.S. crude stockpiles of 1.5 million barrels, according to a preliminary Reuters poll, comes days after a solid jobs data that showed employment returned to its pre-recession peak, adding to a recent string of positive indicators from the world's top economy.

SUPPLY OUTLOOK

The oil market is also keeping an eye on the upcoming meet of the producer group OPEC.

The Organization of the Petroleum Exporting Countries (OPEC), meeting in Vienna on Wednesday, expects its market share to come under pressure in the next few years as the U.S. oil boom and other competing sources boost rival supply, making it harder to accommodate rising Iraqi or Iranian output without a hefty cutback by Saudi Arabia and Gulf allies Kuwait and the United Arab Emirates.

The group is widely expected to keep its output quota unchanged at 30 million barrels per day (bpd) as long as prices hold around the current levels, which are not too strong nor very weak, Spooner said. Top exporter Saudi Arabia may step in to raise output if Brent rises past $120, "which would be considered too hot by the Saudis", Spooner said.

Investors are also watching the progress of talks between Iran and world powers in finding a solution to Tehran's disputed nuclear programme. The talks on curbing the programme in exchange for an end to sanctions could be extended for another six months if no deal is reached by a July 20 deadline, a senior Iranian official said. (Editing by Himani Sarkar)

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