Brent rises towards $111 on US retail sales, small inventory gain

Brent crude rose towards US$111 a barrel on Wednesday on hopes of a revival in demand growth in the world's top oil consuming nation after US retail sales beat forecasts and oil inventories there rose far less than what was expected.

The solid 0.5 percent rise in December retail sales, compared with expectations of only a 0.2 percent increase, showed consumer resilience even in the face of automatic tax increases and government spending cuts. That added to evidence of a slow but steady recovery, and investors are now waiting for more data to gauge the global growth outlook.

Brent futures gained 39 cents to US$110.69 a barrel by 0339 GMT. The February contract, which expires later in the day, settled US$1.58 lower in the previous session, while the more heavily traded March Brent contract ended down US$1.32.

US rose 30 cents to US$93.58 a barrel.

Prices were also supported by data from the American Petroleum Institute that showed crude stockpiles rose by 46,000 barrels in the week to January 11, compared with expectations for a 2.3m barrel rise.

"US retail sales are important data, but not that substantial to trigger a rally in oil prices," said Tetsu Emori, a commodities fund manager at Astmax Investments in Tokyo. "The market is looking for more positive factors to push prices higher and till then prices will trade in a tight range."

Emori expects Brent to trade between US$109 and US$111 a barrel and WTI between US$92 and US$94 until there is stronger evidence of an improvement in the global outlook.

One such number is China's gross domestic product growth, due on Friday, which is expected to show the country's annual economic growth quickened to 7.8 percent in the fourth quarter, according to a Reuters poll, snapping seven straight quarters of weaker expansion.

"I think China's economy has bottomed out," Emori said. "The downside risks to China have reduced and the economy is likely to show signs of improving."

Other issues holding back oil prices include concerns over a lack of agreement on the US debt ceiling, he said.

Gains were capped by the World Bank's latest global growth outlook that said a frustratingly slow economic recovery in developed nations is holding back the global economy.

The Bank cut its outlook for world growth in 2013, forecasting global gross domestic product inching up 2.4 percent this year, from 2.3 percent in 2012. In its last forecast in June, the bank projected global growth would reach 3.0 percent in 2013.

Brent is expected to test support at US$109.64 per barrel, with a good chance of breaking this level and falling to US$108.77, according to Reuters technical analyst Wang Tao.

US oil is expected to retrace to US$92.24.