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Mon 9 May 2011 11:53 AM

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Brent rises above $110 after last week's record rout

Morgan Stanley and JP Morgan both predict increases for crude because of tight supplies

Brent rises above $110 after last week's record rout
(Bloomberg Images)

Brent crude rose above $110 a barrel on Monday on a weaker dollar and concerns over global oil supplies, after losing $16 last week in the biggest ever decline in dollar terms.

After the massive losses for oil on Thursday, banks Morgan Stanley and JP Morgan both predicted increases for crude because of tight supplies.

Brent crude  for June rose by $1.52 to $110.65 a barrel by 0639 GMT. U.S. crude  was up by $1.67 to $98.85, after gaining more than $2 earlier.

"Data is so plentiful that when a correction happens, it tends to happen all at once. I think the market is mostly done with the correction," said Tony Nunan, a risk manager with Mitsubishi Corp in Tokyo.

The dollar also reversed direction, with the euro bouncing back in early Asian trade as traders scooped it up after a steep drop last week. The greenback down 0.3 percent against a basket of currencies by 0635 GMT.

However, uncertainty over how the euro zone will tackle debt crises in some of its member countries could come back to haunt the single currency.

The Reuters-Jefferies CRB index, a global benchmark for commodities prices, last week staged its biggest weekly drop since late 2008.

"The market is likely to trade sideways till the dust settles and new data emerges," said Nunan.

According to technical charts, Brent futures are expected to revisit Friday's low of $105.15 per barrel, while US crude could head back down to $94.63, said Reuters market analyst Wang Tao.

Ongoing unrest in the Middle East and North Africa and tightening oil supplies will continue to support prices, analysts said.

"Importantly, supply disruptions are still present and despite higher prices, global oil demand remains robust," US investment bank Morgan Stanley said in a research note on Monday, echoing earlier calls by JP Morgan and Goldman Sachs.

JP Morgan raised its 2011 Brent forecast by $10 to $120 a barrel, and expects the global market to be under supplied for the rest of the year by 500,000 barrels per day.

Goldman Sachs , which in April predicted a major correction in oil prices, on Friday said oil could surpass its recent highs by 2012 as global oil supplies keep tightening.

Iran's OPEC governor Mohammad Ali Khatibi said on Sunday he expected the price of oil to pick up again during the start of the summer season, but said the market was well supplied.

OPEC is due to meet in June, and if supply remains at the current levels there will be no need to boost output, Khatibi added.

Top oil exporter Saudi Arabia will supply full term volumes to most of its customers in Asia in June, stable from the previous month, as it meets rising demand from the region, trade sources said on Monday.

The disruption of oil exports from Libya and the weaker dollar sent crude to its highest level since 2008 this year, with US crude over $114 a barrel at the start of May, and Brent topping $127 a barrel in April.

Traders expect prices to be rangebound ahead of key Chinese inflation data expected on Wednesday. A higher than expected reading might revive expectations of more policy tightening from Beijing, dealing a further blow to beaten-down commodities.

"The Chinese data is going to be key this week on how the market moves. More negative data is going to be bad for the market," said Mitsubishi's Nunan.

Data from Beijing is likely to include CPI, which may show that inflation in April eased from a 32-month high due to a slight decline in food prices.


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