Brent crude prices steadied above $109 Wednesday as investors pinned their hopes on the U.S. Federal Reserve to inject fresh stimulus to boost the world's largest economy.
Markets are betting that Fed Chairman Ben Bernanke could use his address Friday at a policymakers gathering in Jackson Hole, Wyo., to signal more quantitative easing measures that could translate to more oil demand.
Reduced crude stockpiles in the U.S., uncertainty over when the conflict in Libya will end and a force majeure by Royal Dutch Shell (RDSa.L) on Bonny Light sweet crude were also supporting sentiment.
The oil market is trending higher, and you see this in the equities market as well, but it's purely based on the prospects of a QE2, Jonathan Barratt, managing director at Commodity Broking Services in Sydney, told Reuters.
Hopefully they do come up with a QE3 of some sort. But will this be just a short-term gain? We have already seen a lot of pain. We still have economic concerns and prospects of a double dip.
Brent crude was almost flat at $109.26 a barrel as of 0445 GMT after hitting an intraday high of $109.94, while U.S. October crude was up 10 cents to $85.54 a barrel.
Crude oil could advance toward the $90.73 resistance level based on yesterday's better economic news, anticipation of Fed Chairman Bernanke's Jackson Hole speech, and the possibility that today's EIA data show continued improvement in oil demand, MF Global said in its daily report.
The downside argument will continue to focus on European sovereign debt and the potential return of oil production in Libya. We favor selling the November Brent-WTI spread at $24.50.
The spread between Brent and WTI, which has widened partly on the removal of Libyan crude from the market, is just below $24.00 a barrel.
Shell said on Tuesday it has been forced to shut in its Nigerian Bonny Light crude exports to repair pipeline damage caused by a recent spate of hacksaw attacks.
Traders said Nigeria's total exports would fall from a planned volume of about 2 million bpd in September and 1.85 million bpd in October.
U.S. crude inventories fell 3.3 million barrels last week, against analyst forecasts for an 800,000-barrel rise.
The Energy Information Administration will issue its own weekly data Wednesday at 10:30 a.m. EDT.
Libya's former top oil official Shokri Ghamen had said on Monday that it would take as long as 18 months for Libya's oil flow to reach the pre-war of around 1.6 million barrels per day (bpd), nearly 2 percent of global supply.
I actually feel that you are going to get more of an uptake in Libya's production. The production of the light sweet on the European market will come a lot sooner than what people expect, said Barratt, who estimated that Libya could be currently producing 180,000-200,000 bpd.