Global support for economy helping oil rise

London: Brent crude oil rose above $112 a barrel on Thursday on renewed confidence that major central banks will keep taking steps to support the global economy. Strong domestic demand for Italian debt in a sale on Wednesday reduced worries about its political deadlock and helped boost appetite for riskier assets such as oil, equities and other commodities. European Central Bank President Mario Draghi reiterated on Wednesday the ECB would continue injecting liquidity into markets.

Comments from US Federal Reserve Chairman Ben Bernanke, who testified before a congressional panel for a second straight day on Wednesday, were seen as implying the central bank would maintain its bond-buying strategy to support the economy. “It’s hard to resist the stronger equities and more positive mood in Europe, so for the short term it should be bullish,” Bjarne Schieldrop, an analyst at SEB in Oslo, said.

In the longer term, there are bearish factors that are likely to keep a cap on strength, he said. One potential drag could come from a political deadlock over the US budget. Without a deal from the White House and Congressional Republicans, $85 billion will automatically be slashed from the budget from Friday, which President Barack Obama warned could shave at least 0.6 percentage point off economic growth.

Despite Bernanke’s reassurance, investors remained cautious over the prospect of a dramatic rise in demand from the United States, the world’s top oil consumer, after data showed its inventories of crude oil rose for a sixth straight week last week.

“While confidence is high, there are still risks present. Negative political news from Italy may provide headwinds, while the looming March 1 deadline for the US sequester could trigger $85 billion of across-the-board budget cuts,” said Miguel Audencial, a sales trader with Sydney-based CMC Markets.

Worries about Iran’s nuclear ambitions have helped support oil prices, but on Wednesday Iran gave an upbeat assessment of two-day talks with six world powers, which ended with an agreement to meet again in Istanbul in March.

Analysts in a Reuters poll forecast that crude oil prices would fall this year due to weak demand in many industrialised nations and improving global supply. In a monthly survey of 27 analysts, the consensus forecast was for Brent crude oil to average $110.10 per barrel in 2013, down from an average of $111.70 last year. But the figure was up slightly from last month’s forecast of $109.70 for this year.