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Mon 8 Nov 2010 10:04 AM

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Crude oil trading near $87 a barrel on US economic data

OPEC's secretary general says prices of $90 a barrel would not hold back the world economy

Crude oil trading near $87 a barrel on US economic data
Oil prices will likely to continue to trade in a tight range near $87 a barrel on profit-taking and as the market seeks additional cues on demand. (Bloomberg Images)

US crude oil rose slightly on Monday, trading near $87 a barrel on continued support from last week's US Federal Reserve's economic stimulus package and stronger-than-expected jobs data.

Oil prices will likely to continue to trade in a tight range near $87 a barrel on profit-taking and as the market seeks additional cues on demand, analysts said.

"Crude's been relatively tame this morning. That's a good indicator for what we're going to see for the remainder of the week," said Geoff Howie, sales and market strategist at MF Global in Singapore.

Traders will look for direction from Tuesday's US small business optimism survey as well as weekly job claims, Howie said.

US crude for December delivery rose 7 US cents to $86.92 a barrel by 0440 GMT. ICE Brent slipped 7 US cents to $88.04.

The US central bank said it would buy $75bn in Treasury bonds per month through mid-2011, totaling around $600bn, to boost the nation's economy.

The stimulus news propelled crude oil to a two-year intra-day high of $87.43 a barrel on Friday, the highest intra-day price since hitting $89.82 on Oct 9, 2008, surpassing this year's previous peak of $87.15 on May 3.

Oil futures rose to $87.49 a barrel early on Monday, but failed to set a fresh two-year high as the market pared its gains in a round of profit-taking, analysts said.

US jobs data, which showed private firms hiring at the fastest pace since April, also supported the notion that the world's largest economy is on its way to recovery and investor demand for risk.

"What is really important is that the US economy appears to be back on track," MF Global's Howie said.

While a new round of economic stimulus in the US is boosting the appeal of commodities, a sluggish but sustained economic recovery in other industrialised economies and rampant growth in emerging Asia are raising demand for energy and raw materials.

Commodities continued to rise across the board on Monday with the Reuters-Jefferies CRB index, a global commodities benchmark, climbing above 313 points and gold touching a new record.

"There certainly does seem to be some sense of urgency in the oil market, with a growing perception that the cycle is changing and a sense that the final debris from 2008 and 2009 is being cleared away," Barclays said in a weekly commodities report.

Surging demand and the downward trajectory of inventories may lead oil to trade in a broader range between $70 to $90," Barclays said.

"Oil, as long as it stays above this area, could be considered a continued mover on to $90 and plus," said Jonathan Barratt, managing director at Commodity Broking Services in Melbourne, but added that he does not see fundamentals supporting such a price.

Last week, OPEC's secretary general indicated that prices of $90 a barrel would not hold back the world economy, a higher level than previously identified as posing no risk to growth.