LONDON — Oil rose towards $117 a barrel on Tuesday, resuming its three-week rally, as investor concern faded about political risks in the eurozone that had prompted a sell-off of riskier assets in the previous session.
European shares moved up, with oil major BP among those gaining, and the euro rose after better-than-expected eurozone purchasing managers’ index (PMI) figures. US stocks advanced in early trade, also rebounding from the previous day’s loss.
Brent crude was up $1.24 a barrel at $116.83 at 3.18pm GMT after falling as low as $115.01 earlier. It has gained over 5% this year, and reached a more than four-month high above $117 on Friday. US crude added $0.70 to $96.87.
"We do not envisage prices receding for any great length of time," said Carsten Fritsch, an analyst at Commerzbank. "The supply-side risks still prevailing, shrinking Opec (Organisation of the Petroleum Exporting Countries) supplies and the brightening global economic outlook all suggest that such a retreat is unlikely."
Lower output from Opec has reduced an expected global supply surplus this year, while fighting in Syria and Iran’s dispute with the West over its nuclear work continue to pose the risk of wider disruption to Middle East supply.
Brent’s premium to US crude increased to $20.02, the widest this year. Expectations that stocks at the Cushing, Oklahoma, delivery point for the US contract may keep rising are weighing on the US benchmark, traders have said.
And supporting prices on the Brent side, supply of the North Sea crudes, which underpin the Brent futures contract, is expected to fall in March, according to loading schedules.
Oil fell on Monday, alongside the euro and equities, as a rise in political uncertainty in the eurozone weighed on sentiment.
Analysts said Iran’s offer of fresh talks with the West also put a damper on oil prices.
Iran and world powers on Tuesday announced new talks were scheduled for February 26, but hopes of progress were tempered when an Iranian official said the West’s goal in talking was to undermine the Islamic republic.
In Spain, the prime minister is facing calls to resign, while in Italy, which is having elections this month, former prime minister Silvio Berlusconi is seeing a resurgence in popularity.
Some dealers say crude may struggle to rally much further, seeing little in the supply and demand balance to justify higher prices.
"The market has perked up a bit, but I suspect the quite sustained rally we saw last week is running out of steam now and fundamentals will be reasserting themselves," said Christopher Bellew, a broker at Jefferies Bache.
"There seems to be plenty of crude around. The market is fairly well balanced, so it should not be in an upward spiral because of any lack of supply."
Oil traders awaited a report on US oil supplies later in the day. US crude stocks are expected to rise by 2.8- million barrels, a preliminary Reuters poll found on Monday.
Industry group the American Petroleum Institute releases its report on Tuesday, while figures from the government’s Energy Information Administration follow on Wednesday.