China manufacturing data pointed to a better fuel demand outlook in the world's second largest oil user
Brent crude held steady above $108 a barrel on Thursday as China manufacturing data pointed to a better fuel demand outlook in the world's second largest oil user, offsetting lingering worries about contagion in the euro zone from Cyprus's woes.
Oil held onto gains made in the previous session after data showed growth in China's vast manufacturing sector picked up in March, implying that the second largest economy is still on track for gradual growth recovery. The data also pushed Asian equities and base metals higher.
Brent crude for May delivery edged down 11 cents to $108.61 a barrel by 0402 GMT. US crude for May was at $93.23, down 27 cents.
"China's growth at 10 percent is amazing, growth at 8 percent is quite strong, but China growth at 6 percent is still a lot better than any other developed country out there," said Carl Larry, president of Houston-based Oil Outlooks and Opinions.
China's manufacturing sector growth in March, as shown in a preliminary survey of factory managers on Thursday, pointed towards solid but not spectacular first-quarter growth in the world's second-largest economy.
The HSBC Purchasing Managers' Index for March revived to 51.7 in March from 50.4 in February, but remained below a two-year high of 52.3 reached at the beginning of the year.
The reading is consistent with year-on-year GDP growth of around 8 percent, according to a Credit Agricole-CIB analyst, above the 7.5 percent GDP growth target for 2013 released at the annual legislative session this month.
In the euro zone, Cyprus continued to put investors on edge as it scrambled to avert a meltdown. The Mediterranean island is considering nationalising pension funds and ordered banks to stay shut till next week after it rejected the terms of a European Union bailout and turned to Russia for aid.
"The impact on oil is not direct to demand or supply, but more to the point of investors' money," Larry said, adding that bumps along the European Union's road to recovery have made investors wary of riskier assets such as commodities.
Yet, the US Federal Reserve's pledge to continue efforts to stimulate the world's largest economy helped to lift oil prices on Wednesday after two straight drops on Cyprus worries.
"The rally in the US has been a good one, but before we really pop we need more proof and confidence," Larry said, citing US jobless claims out later on Thursday as a good next indicator on the economy's outlook.
In the United States, oil production is set to surpass the amount of crude the country imports for the first time since 1995 later this year, the Energy Information Administration said on Wednesday.
An oil production boom from shale or tight oil unleashed by advances in horizontal drilling and hydraulic fracturing - known as "fracking" - is expected to raise US output to top 8 million barrels per day (bpd) by the end of 2014, the highest since 1988, the EIA said.
US crude inventories also drew down for the first in nine weeks as imports fell, weekly data showed.
Stockpiles dropped by a surprise 1.31 million barrels in the week to March 15, compared with analysts' expectations for a rise of 2 million barrels.