Picture: THINKSTOCK
Picture: THINKSTOCK

SINGAPORE — Brent crude hovered above $115 a barrel on Friday, its highest level in more than three months, as escalating tension in the Middle East stoked concern about supply.

Brent is set for its biggest weekly gain in two months, while US crude is on track to rise for an eighth straight week, matching a similar winning streak in July-August 2004.

But disappointing economic data from China, the world’s second-largest oil consumer, capped gains. The official purchasing managers index (PMI) missed market expectations, underscoring that the economy is making only a mild recovery from its weakest year since 1999.

Brent was up 27c at $115.82 a barrel by 5.52am GMT, after an earlier high of $115.91 marking its highest since mid-October. US crude edged up by 8c to $97.57.

The spread between Brent and US crude widened by 19c to $18.25 on concern about rising crude stockpiles in the US Midwest, and as the Seaway pipeline operator said it would be the second half of the year before it completes a lateral pipeline from its Jones Creek terminal in Texas.

"I would have thought the PMI data just might have taken some of the gloss off risk assets across the board," said Ben le Brun, market analyst at Sydney-based OptionsXpress.

"Perhaps there’s a little bit more to play out in terms of oil. It wouldn’t surprise me to see traders pay back some of the gains for the week a little bit this afternoon."

Prices also had some support from a private survey released by HSBC showing that growth in China’s giant manufacturing sector hit a two-year high in January, backing expectations a rebound would be led by domestic demand rather than exports.

"If the Chinese PMI readings today were disappointing it was only mildly so," CMC Markets senior trader Tim Waterer said in a note.

"It is almost a case of ‘take your pick’ as to which PMI number (the government one or the HSBC one) is the more accurate reflection of the manufacturing story in China, with bullish traders likely to focus on the HSBC reading, while the bears will place more stock on the official reading."

Investors will be keeping an eye on US nonfarm payroll data, due at 1.30pm GMT, for further clues on the strength of the global economy and signs that sluggish fuel demand will improve.

The numbers are expected to show a rise of 160,000 jobs and a steady unemployment rate.

"If (the US nonfarm payroll data) misses expectations then I would expect a little bit of that premium to come off oil prices," Mr le Brun said.

The US Federal Reserve this week left in place its bond-buying stimulus plan, known as quantitative easing, bolstering hopes for economic growth.

"Brent has had a phenomenal run in recent times ... after the announcement of ‘QE3’ (a third round of quantitative easing) oil was not performing quite as strongly as some analysts were predicting, so maybe it’s just playing a bit of catch-up now from the fact that the Fed has reiterated its bond-buying program," Mr le Brun said.

Middle East tension

Concern about supply stemming from conflict in the Middle East buoyed prices of Brent, the main gauge for global oil prices.

Syria protested to the United Nations on Thursday over an Israeli air strike on its territory and warned of a possible "surprise" response.

US Secretary of State Hillary Clinton urged Iran and Russia on Thursday to rethink their support for Syria, saying the most dire scenarios of the conflict spilling beyond its borders could come to pass.

Ms Clinton told reporters there were signs Iran was sending more people and increasingly sophisticated weaponry to support Syrian President Bashar al-Assad in his 22-month battle against rebels seeking to end his family’s four decades of authoritarian rule.

Tension over Iran’s uranium enrichment plan continued to bubble after a plan to upgrade its refining equipment was delivered to the UN nuclear agency.

Reuters