Brent cruderose towards $112 per barrel on Monday on signs of reviving economic growth in China, the world's second-biggest oil consumer, and supply concerns triggered by tension in the Middle East. Activity in China's manufacturing sector quickened for the first time in 13 months in November, a survey of private factory managers found, adding to evidence of a pickup after seven quarters of slowing growth. "China's data has been broadly supportive of risk markets and entirely consistent with recent numbers suggesting overall improvement in growth," said Ric Spooner, chief market analyst, CMC Markets in Sydney. "The market will continue to build a significant risk premium on the probability of disruptions to oil supplies from the Middle East," he added. Front month Brentfutureswere trading up 13 cents at $111.42 per barrel by 0702 GMT, after rising 2.3 per cent in November. The contract rose to a high of $111.75 per barrel after the China data release. U.S. crudewere little changed at $88.92 per barrel. The contract has broken through a key resistance at $88.75 and could rise to $89.80, according to Wang Tao, Reuters market analyst for commodities and energy technicals. U.S. crude futures are trading at a $22.5 per barrel discount to Brent futures CL-LCO1=R, narrower than the $25.5 discount seen in mid-November. The gap is expected to remain wide as geopolitical risks will keep Brent elevated although U.S. prices may rise moderately due to an expected pick-up in demand, Credit Suisse analysts said in a report. CHINA REVIVAL The HSBC Purchasing Managers Survey (PMI), which focuses on private export-oriented manufacturers, rose to 50.5 in November, inching above the 50-mark that separates growth from contraction for the first time in 13 months. The findings were in line with a preliminary survey released last month and a similar survey by the National Bureau of Statistics. The official PMI rose to a seven-month high of 50.6 for November from 50.2 in October. "This confirms that the Chinese economy continues to recover gradually. We expect GDP growth to rebound modestly to around 8 per cent in the fourth quarter as the easing measures continue to filter through," said Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC. Investors will now be awaiting China's industrial output and trade data later this month for further confirmation of revival in the world's biggest energy consumer. Also offering support to the oil markets are tensions in the Middle East, including hostilities between Israel and the Palestinians, fresh political unrest in Egypt and the conflict in Syria. Adding to jitters, the U.S. Senate approved on Friday expanded sanctions on global trade with Iran's energy and shipping sectors, its latest effort to ratchet up economic pressure on Tehran over its disputed nuclear program. U.S. FISCAL WORRIES But worries about the United States' fiscal deficit and talks on the upcoming fiscal cliff, a $600 billion package of tax hikes and spending cuts which may plunge the world's biggest economy into deep recession, kept oil price gains in check. The U.S. fiscal cliff remains the single key factor influencing demand outlook, and markets are veering round to the view that U.S. economic growth will be slower, Spooner said. The package takes effect at the end of the year and President Barack Obama's administration and congressional leaders are trying to work toward a deficit reduction in the next session of Congress that begins in January. Investors also awaiting economic data from the United States, specifically on employment, to assess the health of the nation's labour market. "The Employment Report could be mixed because there is an elevated potential negative impact from Hurricane Sandy, but a continued positive impact from expanding housing and construction markets," Jason Schenker, president of Prestige Economics, said in a report. "In addition to economic data, policy concerns and the debate over the impending onset of the U.S. fiscal cliff, as well as Eurozone concerns, are poised to move markets this week," he added.
