Oil prices advance on rising US optimism

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Oil prices climbed Wednesday on the back of improving economic optimism in the United States, the world's biggest crude consuming nation, traders said.

London's Brent North Sea crude for March delivery rose $1.26 to $96.51 a barrel in afternoon deals, as traders awaited US energy inventory data and the outcome of the Federal Reserve's latest interest rate meeting.

New York's main contract, light sweet crude for delivery in March, rose 66 cents to $86.85 a barrel.

"Crude oil prices rebounded, supported by improved optimism on the US economic conditions, after President Obama proposed cutting the corporate tax rate as well as scrapping loopholes," said Myrto Sokou, an analyst at Sucden brokers.

"Today, investors will be watching for the US new home sales data and the rate decision, as well as the weekly oil report, for a confirmation of the levels of oil inventories and oil demand," she added.

US President Barack Obama called on Tuesday for a freeze in federal discretionary spending, in his State of the Union speech.

Eyeing the ever-swelling US debt, Obama vowed sweeping reforms to government, but insisted lawmakers should wield a scalpel rather than an axe when tackling spending.

Oil sank on Tuesday in the wake of disappointing economic data in the US and Britain which stirred fears of slowing energy demand.

Official data showed that the British economy shrank by 0.5 percent in the fourth quarter of 2010, confounding expectations for 0.4-percent expansion.

Traders also digested news that US home prices dropped in November for the fifth straight month, according to the Standard & Poor's/Case-Shiller index.

Prices also fell on Monday after OPEC kingpin Saudi Arabia said the cartel may raise its crude output to meet an increase in demand this year.

The Organization of Petroleum Exporting Countries (OPEC) could raise output to meet a "two percent" increase in demand during 2011, Saudi's oil minister Ali al-Naimi said.

He added that he expected average oil prices to be around last year's level of $80 despite a recent spike towards $100 a barrel in London.

On Wednesday, the head of French oil giant Total said that $100-dollar oil would be a "mistake" for the market.

"Going beyond 100 today would be a mistake. It's too high too quickly," Christophe de Margerie told journalists on the sidelines of the World Economic Forum in Davos, after an energy forum at the Swiss alpine resort.

After flirting with $100 a barrel earlier this month, oil has since pulled back amid jitters over the strength of global energy demand.

© 2011 AFP

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