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Brent edges up towards $108, positive Chinese data offsets US stocks build

Jessica Jaganathan
Wednesday, 23 Oct 2013 | 11:39 PM ET

* China HSBC flash PMI hits 7-mth high in Oct

* U.S. EIA reports big rise in U.S. crude stocks

* Brent/WTI spread narrows after widening to $13 in previous session

SINGAPORE, Oct 24 (Reuters) - Brent crude futures edged up towards $108 a barrel on Thursday after positive economic data from China, the world's second-largest oil consumer, helped offset another rise in U.S. crude stockpiles that had depressed prices overnight.

Strong new orders in October drove the biggest expansion in China's manufacturing sector in seven months, according to a preliminary Markit/HSBC survey of purchasing managers, providing further evidence the economy was stabilising.

But U.S. crude oil inventories rose by 5.2 million barrels last week, the fifth-largest build of the year, with stocks at the Cushing hub rising for the second week in a row, showing there was ample supply in the world's largest oil consumer.

Brent crude oil futures had gained 11 cents to $107.91 a barrel by 0255 GMT.

U.S. crude oil futures gained 61 cents to $97.47 after ending at $96.86 a barrel in the previous session, the lowest settlement price since July 1.

"Brent will likely respond in a stronger way to the PMI data as we have seen signs of stabilisation in China's growth ... but we expect China to maintain a cautious monetary policy in the coming months," said Vyanne Lai, an economist at National Australia Bank.

"So unless there's some impetus from geopolitical risk in the Middle East, we don't see Brent rising too strongly in the coming months."

She added that recent high-level talks between Iran and the U.S., lingering uncertainties over the U.S. budget and rising oil production in the United States and Canada pointed to weaker oil fundamentals and would limit any gains in prices.

U.S. crude oil prices continued to outperform Brent and the Brent/WTI spread narrowed to $10.44 after hitting $13 a barrel in the previous session, the widest since April.

The positive news from the Markit/HSBC Purchasing Managers Index (PMI), the earliest reading of China's monthly economic performance, follows a pick-up in economic growth in the third quarter.

But many economists see Chinese growth slowing again as global demand remains soft and as Beijing moves to restructure the economy towards one driven more by consumer demand than investment and credit.

Chinese money market rates have hit three-month highs as regulators show signs of concern that loose liquidity might be fuelling another round of risky credit growth.

Total U.S. crude oil stockpiles have risen by 24 million barrels since mid-September, according to data from the U.S. Energy Information Administration (EIA), as some 1.3 million barrels per day (bpd) of refining capacity has been taken offline.

Stockpiles at the Cushing, Oklahoma, delivery point for the U.S. contract have showed builds over the past two weeks, according to EIA data, snapping 14 straight weeks of drawdowns that had helped support U.S. oil futures and tighten the discount to Brent crude.