Brent Settles Above $112 on US, China Optimism

Oil Refining’s Fortunes Rise
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Brent crude futures edged up in choppy trading on Tuesday, supported by Bank of Japan plans for asset buying, while U.S. economic data and milder weather forecast for the U.S. Northeast next week helped limit oil price gains.

U.S. crude rose, also in choppy trading, as the front-month February contract approached expiration at the end of Tuesday's session.

Crude futures received a lift early when the Bank of Japan announced it would switch to an open-ended commitment to buying assets next year and double its inflation target to 2 percent in an effort to end years of economic stagnation.

(Read More: From Cautious to Bold, Can the Bank of Japan Deliver?)

"Oil and most commodity markets are starting the shortened U.S. trading week higher after the Bank of Japan came out with an aggressive monetary program after over 20 years of going nowhere," said Dominick Chirichella, of New York's Energy Management Institute.

Limiting gains was a report from the National Association of Realtors showing that existing home sales dropped 1.0 percent in December.

A separate report showed factory activity in parts of the U.S. mid-Atlantic and South contracted in January, according to the Federal Reserve Bank of Richmond.

Brent crude for March delivery settled up 71 cents to $112.42 a barrel, while February U.S. crude was up 68 cents at $96.24 a barrel, having recovered from a session low below $95.

U.S. financial markets were closed on Monday for a holiday, with trading on electronic platforms being done for a Tuesday trade date.

Brent's premium to U.S. crude eased toward $15.50 a barrel on Tuesday, comparing March contracts. The spread between Brent and U.S. crude has narrowed in recent weeks on expectations the expanded Seaway crude oil pipeline will begin to end the glut in the Midwest

The Seaway pipeline runs from the key Cushing, Oklahoma, oil hub, delivery point for the U.S. light sweet crude contract traded on the New York Mercantile Exchange, and the refinery-rich Texas Gulf Coast.

U.S. February heating oil was up 1.57 cents at $3.0682 a gallon, back below the 100-day moving average of $3.0709 after reaching a session high $3.0911.

U.S. February RBOB gasoline gained more than 1 percent, up 2.84 cents at $2.8252 a gallon, getting a lift from expectations for an active upcoming refinery maintenance season.

"A bit of disappointment in the December existing home sales number and the weaker stock market opening pulled crude prices back after being pushed higher on the Bank of Japan news," said Phil Flynn, an analyst at Price Futures Group in Chicago.

"A warmer forecast for next week after the current cold snap pulled heating oil back from its high," Flynn added.

While the first sustained cold snap this week is hitting the U.S. Northeast, the country's primary heating oil market, a warmer forecast for next week limited heating oil futures, traders said.

Forecaster MDA Weather Services called for much-below-normal temperatures for most of the eastern half of the United States in its one to five-day outlook, but expects above-normal readings in its six- to 10-day outlook.

The latest U.S. National Weather Service six-to-10-day forecast issued on Monday also expected above-normal readings stretching across the eastern third of the nation.