Brent Tests New 3-Month High Above $114 After Fed

Saudia Arabia Oil
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Brent crude oil hit a three-month high on Wednesday, reaching $115 a barrel after better-than-forecast European data spurred optimism over the global economy, despite disappointing U.S. economic growth figures.

The market held its gains after the U.S. Federal Reserve announced it would continue its $85 billion monthly bond buying, and hold interest rates near zero until unemployment falls to at least 6.5 percent.

Brent crude rose nearly half a percent to trade just shy of $115 a barrel on Wednesday morning, its highest since Oct. 16, 2012. U.S. oil also rose about half a percent to trade a hair below $98, in the wake of the U.S. Energy information Administration released data showing crude inventories rose more than forecast last week, as refined products fell.

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Euro zone economic sentiment improved more than expected across all sectors in January, rising for the third month in a row in a sign that the economy could be emerging from a low point in the fourth quarter of 2012.

U.S crude oil inventories jumped 5.95 million barrels in the week to Jan. 25, the EIA said in its weekly report. Analysts had forecast a 2.6 million barrel crude build.

Brent crude is up 3.5 percent this month, its biggest gain since August, but lagging behind equities, with the U.S. S&P 500 up about 5.7 percent.

The European Commission's economic sentiment index rose to 89.2 points in January from 87.8 points in December, against market expectations of an improvement to 88.2.

Brent crude is up 3.5 percent this month, its biggest gain since August, but lagging behind equities, with the U.S. S&P 500 up about 5.7 percent.

Filip Petersson, an SEB analyst in Stockholm, pointed to likely relative weakness for oil in coming months because of a fairly well-supplied oil market.

"Oil has followed risk assets higher, but we think it's strong versus the fundamentals, with production cuts needed from Saudi Arabia due to strong supply from OPEC," he said.

Investor sentiment received a boost on Tuesday after U.S. home price data showed prices in November rose more than 5 percent from a year ago - the biggest increase since August 2006, when the housing market was starting to collapse.

Tempering gains, the U.S. economy unexpectedly contracted in the fourth quarter, suffering its first decline since the 2007-09 recession as businesses scaled back on restocking and government spending plunged.

The focus, however, is now on the Federal Open Market Committee's (FOMC). The Fed stated it expects to keep short-term U.S. interest rates exceptionally low to support the economy.

The low rates have helped to push up oil prices, with investors pouring cash into riskier asset classes.

(Read More: Better Enjoy the Market Rally While You Can)

China Lift

The short-term oil outlook was also buoyed by optimism about growth acceleration in China.

January factory activity in China is expected to have expanded at its fastest pace in nine months, according to a Reuters poll ahead of official PMI data on Friday, adding to signs that recovery momentum is building as domestic demand strengthens.

The rebound in China's growth is expected to continue until the second quarter before fading in the second half, though an economic rebound elsewhere towards year-end is likely to sustain global growth rates for the year, said Jeremy Friesen, a commodities strategist at Societe Generale in Hong Kong.

Supply risks from the Middle East also supported oil prices after activists said at least 65 people were found shot dead with their hands bound in the northern Syrian city of Aleppo on Tuesday in the near two-year revolt against President Bashar al-Assad.

U.S. crude stocks rose by 4.2 million barrels last week, the American Petroleum Institute (API) reported on Tuesday.

Crude stocks at Cushing fell by 15,000 barrels, according to the API, while gasoline stocks rose by 2.4 million barrels and distillate stocks fell by 1.8 million.

Analysts had expected U.S. crude stocks to rise by 2.6 million barrels, according to a Reuters survey ahead of weekly inventory reports from the API and the U.S. government's Energy Information Administration (EIA).

The EIA weekly inventory report is due later in the day on Wednesday.