LONDON, (Reuters) – Firm Chinese economic data and brewing tension between Iran and the West pushed oil above $112 a barrel on Wednesday, putting it on track for its highest close in three weeks.
Brent crude was up $1.39 at $112.37 by 1415 GMT, heading for its highest close since Jan 11. U.S. crude was up 53 cents at $99.01.
“The market is confined to a range between $110.50 and $112.50 basis for front month Brent but the cold weather in north west Europe and continuing tension over Iran makes it likely that any break will be to the upside,” said Christopher Bellew at Jefferies Bache.
China’s official Purchasing Managers’ Index showed the manufacturing sector in the world’s largest energy consumer expanded modestly in January, with the index reading inching up to 50.5 from 50.3 in December, above a forecast for 49.5.
The United States imposed the harshest sanctions so far on Iran when President Barack Obama on December 31 signed into law sanctions on transactions involving Iran’s central bank while the European Union last week imposed a ban on the import, purchase or transport of Iranian oil.
U.S. lawmakers are considering adding measures that would single out Iran’s national oil and shipping companies and restrict its ability to tap into electronic banking services.
Elsewhere in the Middle East, Al Qaeda militants killed at least two government soldiers on Wednesday when they ambushed a patrol in central Yemen, which shares a porous border with oil giant Saudi Arabia.
Below average temperatures in Europe have put upward pressure on oil products like heating oil, which has fed into stronger crude prices.
A dispute between Sudan and South Sudan on oil transit fees dragged on, also adding to supply concerns. The newly independent South Sudan has shut production estimated at 350,000 barrels per day (bpd).
While China’s PMI data was relatively strong, the Finance Minister warned that the country faces downward risks in 2012, as weakening external demand drags on growth in the country’s export sector.
Worries about the euro zone debt crisis and slowing growth in the United States continue to weigh on investor sentiment.
Euro zone manufacturing activity declined for a sixth month in January as a slight upturn in Germany failed to offset a prolonged contraction in the bloc’s smaller economies, a survey showed on Wednesday.
Near-bankrupt Greece must make “difficult” decisions in the coming days to clinch a debt swap agreement and a 130 billion euro bailout package needed to avoid an unruly default, the government said on Tuesday.
In the United States, data showed home prices dropped more than expected in November, while consumer confidence soured in January.
U.S. oil stocks data scheduled to be released by the Department of Energy on Wednesday will offer clues to demand from the world’s largest oil consumer.
“The DOE revisions higher for November are still a bearish risk for a correction spill-over into the weekly reports,” said Olivier Jakob at Petromatrix in Zug, referring to an upward revision in its monthly inventory statistics for the month.
U.S. crude oil inventories rose by 2.1 million barrels last week, industry group American Petroleum Institute said in a report late on Tuesday, which was less than analysts’ expectations of a build of 2.4 million barrels in a Reuters poll.