LONDON, (Reuters) – Oil prices edged up on Thursday after two days of declines, supported by ongoing cold weather in Europe and renewed optimism about global economic growth, but later pared some of its gains as the dollar turned positive.
Benchmark U.S. light crude oil futures for January traded 54 cents up at $88.82 at 1400 GMT after rising more than $1 earlier on Thursday. ICE Brent crude added 58 cents to $91.35.
A positive reading of the weekly U.S. unemployment benefit claims also lent support, as jobless claims fell 17,000 last week and the four-week moving average hovered at two-year lows.
A more benign labor market environment could support consumption in the United States, the world’s biggest oil user. In Europe, shares hit a 26-month high on Thursday and Asian markets closed higher.
Christophe Barret, an analyst at Credit Agricole, attributed the rise in the oil price to the ongoing cold weather in Europe and forecast that it would continue to support prices in the coming days despite the rebound in the dollar.
“I think that what is supporting oil prices right now is the cold snap that we are having in Europe. It’s still very cold. And because of the cold we are using a lot of fuel oil, heating oil and kerosene,” he said.
Oil thinned its gains as the dollar regained momentum and recovered from an earlier weakness to be up around 0.1 percent against a basket of currencies. A firmer dollar makes assets more expensive for holders of other currencies.
“The link to the dollar can exist while fundamentals are not here, but right not with the type of weather that we have, we have refineries increasing runs, we have strong demand for oil,” Barret added.
Commerzbank’s analyst Carsten Fritsch pointed to a generally improving market sentiment which was seeing a rise in stocks and other commodities with copper hitting yet another all-time high.
“This short-term correction we saw yesterday was short-lived too, back to bullish demand,” he said.
Traders and analysts said they were cautious ahead of a possible Chinese interest rate rise and a meeting this weekend of the Organization of the Petroleum Exporting Countries, which will look at its output targets.
OPEC appears unlikely to raise oil supply targets to cap an oil price rally when it meets in the Ecuadorean capital Quito, but could hint at the possibility of higher production later.
“The question is if the oil prices rise well above $90 will they (OPEC) say something about it. Saudi Arabia recently said prices up to $90 are comfortable but not above $90,” said Fritsch.
China is widely expected to raise rates soon.
“We would be cautious going into next week, with the very real possibility that the Chinese may move on the rate front,” said Edward Meir, oil analyst at brokers MF Global.
“We do not think that this move is completely discounted yet, and should it occur, it will likely cause further weakness in Chinese equity markets, which is bound to spill over into commodities.”
A bigger-than-expected 3.8-million-barrel drop in U.S. crude stockpiles last week also contributed to the gain in prices.