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SYRIA VIOLENCE WEIGHS

Oil rises above $104 on Mideast risk, equities

London, May 28, 2013

Brent crude oil moved above $104 per barrel on Tuesday, supported by stronger equities markets and rising Middle East risk but held back by ample supplies and concern over fuel demand as global economic growth remains tepid.

European recession and a contraction in Chinese factory activity are limiting oil use but producers are pumping at least as fast as end-users are consuming, leading to a build-up in inventories.

U.S. crude oil stockpiles are near all-time highs, while U.S. gasoline reserves are rising at a time when seasonal demand is traditionally nearing its peak.

But financial market sentiment was buoyant on Tuesday with Asian and European stock markets higher on hopes of expansionary monetary polices.

Brent crude oil for July was up $1.45 at $104.07 per barrel by 1110 GMT, while U.S. crude rose 60 cents to $94.75 per barrel.

Oil was also supported by violence in Syria, which threatens to spill over into the rest of the Middle East, responsible for almost a fifth of the world's seaborne crude oil supplies.

Attempts to renew a European arms embargo on Syria failed on Monday and Britain and France are likely to start supplying Syrian rebels with weaponry later this year.

"The European Union decision to lift the embargo on arms sales to Syrian rebels is bringing some additional geopolitical risk premium to the oil markets," said Olivier Jakob, energy analyst at consultancy Petromatrix in Zug, Switzerland.

"Hezbollah has also taken a very strong stand on Syria."

"Oil has made gains today on the back of friendly equity markets," said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt. "Market participants are already likely to be focusing on OPEC's meeting at the end of the week."

The Organization of the Petroleum Exporting Countries meets in Vienna on Friday to decide its production policy but is unlikely to alter its output targets, delegates say.

Further clues on the health of the global economy will come from China's final PMI numbers this weekend, as well as a spate of data from Beijing next week.

According to preliminary data last week, U.S. factory activity slipped to a 7-month low in May.

"Oil markets appear to be more interested in broader economic signals in the U.S. and China for a view on demand," ANZ analysts said in a report.

Still, some traders said the start of the U.S. summer driving season could draw down some of the country's gasoline inventory, which is currently close to the highest level for this time of year since 1999. – Reuters




Tags: Oil | London | Syria | European Union | Brent Crude | US stockpiles |

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