Brent steady above $116 on U.S. stocks draw; Greece risk weighs

SINGAPORE (Reuters): Brent crude futures held above $116 a barrel on Wednesday, as uncertainty over Greece’s ability to resolve its debt problems was offset by a sharp drop in U.S. crude inventories.

The American Petroleum Institute (API) reported a surprise drawdown of 4.5 million barrels in the week to Feb. 3, defying a consensus forecast for an increase of 2.4 million barrels. “The market was expecting a big build, with many refineries expected to go into turnaround in February and March, so the numbers are a boost for prices,” said Tony Nunan, a risk manager with Mitsubishi Corp in Tokyo.

Front-month Brent edged up 12 cents to $116.35 a barrel by 0721 GMT, its seventh straight days of gains. U.S. March crude rose 73 cents to $99.14 a barrel, buoyed by an unplanned outage at a Canadian oil sands plant. The spectre of Europe’s debt crisis dragging the region into a recession that could crimp oil demand continued to weigh on risk assets.

Greek political parties will try yet again on Wednesday to strike a reform deal in return for a new international rescue to avoid a chaotic default.

“There is little doubt that should Greece come to an agreement with private debt holders and agree to tough austerity measures this would be viewed favorably in risk asset markets,” said Ben Le Brun, market analyst with OptionXpress in Sydney.

Brent’s premium to U.S. crude oil <CL-LCO1=R> narrowed towards $17 a barrel, after the spread had widened to more than $20 per barrel on Tuesday, its highest since October.

The spread narrowed after the bullish API data and news that a Canadian oil sands plant close for a few weeks boosted U.S. crude.

Goldman Sachs analysts said they were closing their short March 2012 WTI-Brent position, citing the recent widening of the spread to levels not seen since November.

Brent will consolidate in a range of $115.29 to $116.79 for one or two trading sessions before rising towards $118.65, while U.S. oil will edge up to $99.59 per barrel, as it has broken a resistance at $98.61, said Reuters market analyst Wang Tao.

The prospect of supply disruptions has put a floor under prices, with Iran’s parliament saying on Tuesday it was ready to impose a ban on oil exports to the EU, while clashes in Nigeria are also worrying investors about potential supply problems.

On the demand side, the U.S. government’s Energy Information Administration (EIA) boosted its 2012 and 2013 forecasts for global oil demand growth, and said supply would tighten as gains in non-OPEC production lag, adding to support for oil prices.