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Brent crude held above $109 a barrel on Thursday as upbeat data from China kindled hopes for better demand from the world's second largest oil consumer, but signs that OPEC producer Libya may resume exports dragged on prices.
Activity in China's manufacturing sector hit a four-month high in August as new orders rebounded, a preliminary survey showed. This added to promising reports for July ranging from factory output, exports to retail sales, reinforcing signs of stabilisation in the world's No.2 economy.
"This is a good sign. Commodity prices should bounce from these levels," ANZ analyst Natalie Rampono said, but added that prices would be pressured if an expected roll back in the US Federal Reserve's stimulus next month comes to pass.
"We're expecting a 70% chance for the Fed to start tapering in September," Rampono said. "That should have a negative impact, in particular, on US crude."
Brent crude edged down 21 cents to $109.60 a barrel by 0506 GMT. US crude was unchanged at $103.85, after dropping by as much as 32 cents earlier in the session.
Losses in the US benchmark were partly driven by signs that companies were diverting oil to the depleted Cushing, Oklahoma storage hub for the first time in 12 months. The Brent-WTI spread widened to more than $6 for the first time since June on Wednesday.
WANING SUPPORT FROM GEOPOLITICAL TENSIONS
Oil's support from geopolitical tensions in the Middle East and Africa has eased just a touch, Rampono pointed out.
Libya's Marsa al Brega port, which local sources said reopened on Tuesday, may handle oil cargoes in the next few days, a shipping source close to the trade said.
But the worst disruption to Libya's oil sector since the civil war of 2011 continued, with the largest terminals, Es Sider and Ras Lanuf, still blocked by protesters for nearly four weeks.
A political crisis in Egypt has also stoked supply worries as the country is home to the Suez Canal and the Sumed pipeline, which together carry around 4.5 million barrels per day of oil between the Red Sea and the Mediterranean.
The Egyptian army has said it will guarantee the safety of the canal and pipeline but any disruption could have a major impact on oil prices.
For now, prices are not expected to see much of an upside from the geopolitical worries, Rampono said.
"Markets have factored in production cuts from Libya and there's no issue of exports disruption at the Suez Canal."
