By Claire Milhench
Brent crude futures were up $1.13 a barrel to $115.69 by 0851 GMT (3:51 a.m. ET), after pushing up to $115.83 as London traders arrived at their desks.
Brent settled $2.59 higher on Monday at $114.56, its highest in more than seven weeks. U.S. crude was up 76 cents at $96.28 a barrel.
“There are several factors at play, some are offsetting each other but the general trend is to the upside,” said Carsten Fritsch, an energy analyst at Commerzbank in Frankfurt.
“We have a temporary solution to the Greek political crisis, strong seasonal demand for heating oil, low gasoil stockpiles in Europe, low distillate stockpiles in the U.S., and China becoming a net diesel importer in November.
“There is also the geopolitical risk from the Iran nuclear program – all these factors are supporting oil prices.”
Iran’s dispute with the West intensified ahead of a report from the U.N.’s International Atomic Energy Agency (IAEA) that is expected to show Iran’s nuclear program is being geared toward weapons manufacture.
On the demand side, China’s top refineries plan to raise their crude oil throughput in November to the highest in a year, as state oil firms ramp up operations amid domestic diesel shortages and the restart of a key plant after maintenance.
Market participants are awaiting Chinese inflation data due out on Wednesday to assess the chance of policy easing in the world’s second-biggest oil consumer.
China’s annual inflation is expected to ease to 5.5 percent in October, the third straight month of decline from a three-year high of 6.5 percent in July, as food price rises cool.
“It’s fundamentals that are driving us higher,” agreed Todd Gross, co-founder of Hudson Capital Group in the United States.
“Gasoil supplies are low in certain parts of the world, everything is now backwardated from gasoline to crude and we’re heading into the biggest demand month of the year — global demand is 1-2 million barrels per day higher in December than it is in October…Oil is driving its own bus.”
Gross also noted the market impact from the upcoming IAEA report on Iran: “It’s a very dangerous situation and you can’t blame prices for rising if traders think something might happen in the next six months.”
The biggest negative factor in the market at the moment is the deteriorating situation in Italy, which has replaced Greece as the prime threat to the stability of the eurozone.
“Italian bond yields have risen to their highest levels since 1997 despite huge ECB buying activity, which will cap gains in oil prices,” said Fritsch. Higher bond yields hinder the debt-ridden country’s borrowing ability.
SUPPLY ISSUES
Oil prices are also being supported by a slower ramp-up in exports from Libya, and continued unrest in oil producers Syria and Nigeria.
“Libyan oil production has recovered a little faster than expected and is currently above 500,000 barrels per day,” said BNP Paribas analysts in a report.
“But more production does not equate necessarily with sustained higher exports that would depress Brent prices — exports, to date, have been at best sporadic.”
In Syria, troops and militiamen loyal to President Bashar al-Assad moved into a residential district of Homs overnight on Monday after six days of tank bombardment that killed scores of people in the hotbed of unrest, residents and activists said.
(Additional reporting by Francis Kan in Singapore and David Sheppard in New York; Editing by Alison Birrane)
