Brent crude was steady in a tight range under US$117 per barrel on Thursday as traders waited for the outcome of a European Central Bank meeting and China data for more evidence the global oil demand outlook was improving.
Brent gained over the last three consecutive weeks as positive data signalled the global economy had turned a corner, which augurs well for fuel demand, while supply worries stemming from simmering tensions in the Middle East have also supported prices.
Still, further gains may be harder to come by as the good news appears to be priced in and rising inventories in the United States suggest that supplies are outpacing demand in the world's top oil consumer, traders say.
"The markets have pretty much built in the fact that the worst is over for now, and I think we're close to the top," said Tony Nunan, an oil risk manager at Mitsubishi Corp.
"Geo-political tensions will keep the heat under the market, but the market is fundamentally over-supplied, so I'd say we are near the peak for now."
Front-month Brent futures were trading up 16 cents at US$116.89 per barrel at 0720 GMT, while US crude added 6 cents to US$96.68. Both contracts remained mostly steady in the previous session as well.
Oil markets have been drawing comfort in recent weeks from signs the euro zone economy has neared its bottom, while the economies of top oil consumers United States and China also signalled a pickup in activity.
Markit's Eurozone Composite PMI, based on business activity across thousands of companies, and a good gauge of economic growth, rose in January to a 10-month high of 48.6 from 47.2 in December.
Still, investors have been speculating about leadership changes in Spain and Italy and watching for comments from European leaders as well as the outcome of the ECB meeting.
While analysts unanimously expect the bank to hold interest rates, its comments on the outlook for the troubled region's economy and the impact of the euro's recent strength will be closely monitored by commodity markets.
The Chinese economy ended seven straight quarters of slowing growth in the fourth quarter by growing 7.9 percent while the US services sector extended a three-year expansion in January and the employment index hit a seven-year high.
"We expect China's oil demand to grow by 5 percent in 2013, backed by a solid economic recovery and the addition of new refining capacity," Sijin Cheng, commodities analyst at Barclays Capital wrote in a report.
Also supporting oil are supply worries which escalated after Tunisia's ruling Islamists dissolved the government to calm street riots, bringing back memories of the Arab Spring revolts that shook the region two years ago.
Tunisia is located between major oil producers Algeria and Libya. Adding to the concerns was Syria's ongoing struggle to end a two-year old conflict and violence in Egypt that killed 59 people last month.
But gains in US crude prices may be capped by a rise in domestic oil inventories.
Crude stocks rose to 371.7m barrels last week and have been building to near-record seasonal highs. The builds have come in part due to higher domestic oil production, which has risen to near 18-year highs.
"Given elevated crude production of 7.0 mb/d and despite imports trending downwards, supply exceeded refinery demand and led to a stock build that leaves crude inventories some 10 percent higher than a year ago," BNP Paribas analysts said in a report.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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