London: Oil was up at just over $113 a barrel on Wednesday, underpinned by expectations of lower US crude stocks after a storm disrupted production in the Gulf of Mexico, and optimism about a new support package for the US economy.
A Reuters poll ahead of the weekly inventory report from the US Energy Information Administration gave a consensus forecast for a fall of 1.9 million barrels of crude in the week to 2 September.
Front-month Brent crude futures gained 42 cents to $113.31 a barrel by 3:35pm, after settling up $2.81 on Tuesday. US crude was trading at $87.07 a barrel, up $1.05.
Brent had rallied from $109.85 to $113.61 on Tuesday, and Wednesday’s trading consolidated these gains, supported by a weaker dollar , tight North Sea supplies, and the ongoing hurricane season.
“Oil does seem to have an ability to stay up despite appalling economic data, due to Middle East unrest, hurricanes and dollar weakness,” said Christopher Bellew, a trader at Jefferies Bache.
He said oil had bounced on Tuesday partly because of the Swiss National Bank’s decision to peg the Swiss franc to the euro to try to prevent further appreciation.
Analysts believe oil may gain further support from this move because it reduces the number of safe haven assets available.
“Investors will seek other obvious investments,” said Thorbjorn Bak Jensen, an oil analyst at Global Risk Management. “Commodities will surely be one of them. Yesterday’s mini-rally supports our conclusion.”
Olivier Jakob, oil analyst at Petromatrix, agreed: “With what is going on in the currencies and the stock market we have to respect that some flows might be looking for a parking spot.”
Traders are also closely tracking the progress of storms in the Atlantic. Tropical Storm Lee, which made landfall over the weekend, is expected to have disrupted imports to the US, adding to the impact of Hurricane Irene, which forced the closure of several oil hubs on the US East Coast the previous weekend.
“Following Tropical Storm Lee, production of almost 850,000 barrels a day, or over 60 percent of US oil production in the Gulf of Mexico, were still shut down until yesterday,” said analysts at Commerzbank. “This should be reflected in a fall in US crude oil inventories.”
A broad area of low pressure located over the southern Gulf of Mexico has a medium 40% chance of becoming a tropical cyclone in the next 48 hours, the US National Hurricane Center forecast.
Analysts and traders also pointed to hopes that US President Barack Obama might announce new stimulus measures to boost the flagging US economy.
Obama is expected to unveil a $300 billion package to create new jobs in an address to Congress on Thursday, CNN reported, citing Democratic sources.
Brent crude could rise towards $115.36, while US oil is expected to revisit the 1 September high of $89.90, Reuters market analyst Wang Tao says.
The market is also taking some comfort from the fact that fears of a sharp slowdown in China have eased after an influential government economist said the world’s second-biggest energy consumer would be able to achieve a soft landing for its economy.
“There are some signs that it is nothing like as bad in the Far East as it is in Western economies,” said Bellew.