Oversupply weighs on US crude gains

London : US crude rose yesterday as fund activity helped the market to recover from a sell-off the previous session, but oversupply curbed gains.

Nymex crude for January delivery rose 50 cents to $77.10 a barrel by 1223 GMT, after settling down $1.77 at $76.60 on Wednesday.

Brent crude rose 77 cents to $78.65 per barrel after touching a session high of $78.91.

Wednesday's declines, which stemmed a two-day advance, followed US government data showing crude stocks rose 2.1 million barrels last week, topping the forecast for a 400,000 barrel rise in a Reuters poll.

The mass of available crude had a particularly marked impact on contracts for delivery in the near term and fund flows were moving from the front-month January contract into February crude, analysts said.

The European Central Bank left its interest rates unchanged at 1 per cent as announced yesterday.

"The end result over the next six months is you have low interest rates with unleveraged cash in bank accounts seeking somewhere to go in search of yield, and this favours risk appetite and supports equities," said senior BNP Paribas commodities analyst Harry Tchilinguirian.

This can also support oil, but its weak fundamentals have modified the potentially bullish impact.

"Oil will keep doing what it has been doing in relation to equities since March. It's not that oil prices are disconnected from fundamentals, it's that front month prices are reacting to equity markets," Tchilinguirian said.

Consecutive session

European shares rose for a third consecutive session yesterday. The FTS-Eurofirst 300 was up 0.4 per cent at 1,020.20 points and 58 per cent from the life-time low in March after slumping 45 per cent in 2008 because of the global economic downturn.