Oil rally holds, promising second weekly gain

[LONDON] Brent crude oil traded almost US$2 higher on Friday, on track for its second weekly increase, as fighting in Libya and stronger economic signals from the United States helped futures rebound from near-six-year lows.

Prices remain roughly 50 per cent below their peak from the middle of last year, and no rapid recovery is expected amid rising global inventories and steady OPEC supply.

But further declines in the US oil-rig count, concerns over dented output from Libya, a key Mediterranean oil producer, and the anticipation of stronger US jobs data boosted prices.

The average number of US rigs drilling for oil fell by 199 in January from December, following the largest weekly drop since 1987 last week, Baker Hughes said.

"Any time you see a declining rig count, that's going to be a support, said Dominic Haywood, crude oil analyst for Energy Aspects. "Crude is pretty strong."

Benchmark Brent crude traded US$1.90 higher at US$58.47 per barrel by 1155 GMT. On Thursday, Brent closed up US$2.41.

US crude for March delivery traded at US$52.18 per barrel, up US$1.70, after trading more than US$2 higher. The contract finished with a gain of US$2.03 the previous day.

Fighting across Libya, where two governments and parliaments allied to rival armed groups are vying for control, highlighted the threat of a breakup in the country, imperilling the country's oil exports.

US non-farm payroll data due later on Friday is expected to show firm job growth in the world's largest oil consumer in January, a positive signal for demand.

These developments helped override worries over a global glut of oil, as well as cuts to the official selling price to Asia from top Opec producer Saudi Arabia to the lowest level in at least 12 years.

The cut highlights Middle Eastern producers' battle to gain market share in Asia, but increases to official Saudi selling prices to the United States and Europe left a mixed signal.

"The official selling price to Europe increased quite a lot," said Olivier Jakob of Petromatrix. "They're reflecting the tighter picture in the Mediterranean."

Still, many analysts forecast price gains to be short-lived, and limited. Growing numbers of Opec delegates say they expect no rapid recovery in oil prices.

A strike at nine US refineries accounting for 10 per cent of US capacity also headed into a sixth day after union leaders rejected the latest contract offer from lead negotiator Royal Dutch Shell Plc.

REUTERS