Oil prices edged up on Tuesday to trade close to $114 a barrel after weak European economic data proved to be slightly less gloomy than anticipated and ahead of a US report expected to show a drop in oil stockpiles.
The eurozone’s debt-ravaged economy shrank in the second quarter, having flatlined in the first, despite continued German growth which economists said could soon be snuffed out.
The eurozone economy shrank in the April-to-June period, in line with expectations, as businesses and consumers reined in spending although second-quarter GDP data from France and Germany was better than expected.
But, Germany’s forward-looking ZEW sentiment index has dampened hopes the eurozone stalwart will be able to decouple itself from the region’s economic downturn, after it dropped unexpectedly in August.
Brent crude rose 34 cents to $113.94 a barrel by 1028 GMT, after closing 65 cents up at its highest settlement since May 3. US crude firmed by 38 cents to $93.11 a barrel.
Apart from European growth numbers, markets were also eyeing July retail sales data from the United States for an indication the health of the world’s biggest oil buyer. Economists in a Reuters survey expect a 0.3 per cent rise compared with a 0.5 per cent decrease in June.
“Investors will be looking for a positive retail sales number in July to turn around a succession of weaker months,” Ric Spooner, chief market analyst at CMC Markets, said in a note.
Prices also remained supported by underlying supply worries stemming from tensions in the Middle East and falling North Sea production in September.
“Demand is not really there but these factors are adding up to the bullish camp.”
Analysts at ANZ said in a daily note that Brent may stabilise in a $110-115 range, with the increase in tension in the Middle East or a steeper decline in North Sea output bringing “the $120 technical target into play”.
The September spread is fluctuating over $20 a barrel, counterbalancing the narrowing effect of the Seaway pipeline reversal, which began pumping in mid-May, allowing crude stocks from Cushing to reach the US Gulf coast.
US crude stockpiles were forecast to have fallen by 1.6 million barrels in the week to Aug.10, declining for a third straight week on lower imports, a preliminary Reuters poll of seven analysts showed on Monday.
The API data will be followed by more closely watched numbers from the US Energy Department on Wednesday.
British inflation unexpectedly rose in July, damaging hopes that easing price pressures would allow Britons to help the recession-hit economy with higher spending, but leaving expectations for more central bank stimulus intact for now.
Consumer price inflation inched up to 2.6 per cent from 2.4 per cent in June as prices for airfares soared and clothing retailers reined in seasonal discounts, the Office for National Statistics said on Tuesday, confounding economists’ forecasts for a fall and posting the first rise since March.
Last week, the Bank of England slashed its inflation forecast, seeing inflation nearly back at its 2-per cent target by the end of this year.
Analysts said the July figures were bucking a broader trend.
“We really need to take the June and July figures together and this implies that the downward trend in prices remains in place,” James Knightley, an economist at ING, said.