Oil rises above $117 ahead of ECB meeting

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Oil rose above $117 a barrel on Thursday as traders awaited word from the European Central Bank (ECB) on the region's troubled economy while keeping an eye on renewed tensions over Iran's nuclear programme.

Brent crude has risen steadily over the past three weeks as positive economic data in key countries boosted the outlook for oil consumption, while simmering tensions in the Middle East have led to supply concerns, further supporting prices.

March Brent futures were trading up 88 cents at $117.61 a barrel at 1200 GMT, having earlier reached $117.72, the highest level since mid-September.

U.S. crude added 25 cents to $96.87 as the spread between the two benchmarks again widened beyond $20 a barrel.

"Brent has been in an upward channel in the past two weeks. That all comes back to increased investor risk appetite," BNP Paribas analyst Gareth Lewis-Davies said.

Investors were waiting for ECB President Mario Draghi's views on the region's economy at a news conference at 1330 GMT after the body's policy meeting.

The ECB is widely expected to maintain interest rates at a record low of 0.75 percent, even though the strengthening euro could hurt the recovery in struggling economies such as Spain.

"The European Central Bank press conference today will be very important for overall sentiment over the euro zone," SEB analyst Bjarne Schieldrop said.

Bullish sentiment over oil supply was supported by news on Wednesday that Saudi Arabia's production in January remained largely unchanged from December, when output was cut by about 700,000 barrels a day.

Brent's strong backwardation, when front-month prices are higher than those in the future, are further supporting the benchmark as they offer attractive rollover yields to investors, Schieldrop said.

"The backwardation is an expression of a tight physical market, which explains why Brent has been gaining ground."

ECONOMIC FILLIP

Oil markets have been drawing comfort in recent weeks from signs that the euro zone economy may have neared its lowest point, while the economies of top oil consumers the United States and China have signalled a pick-up in activity.

The Chinese economy ended seven straight quarters of slowing growth with a 7.9 percent lift in the fourth quarter. The U.S. services sector extended a three-year expansion in January and the employment index hit a seven-year high.

Iran's supreme leader Ayatollah Ali Khamenei on Thursday rejected an offer by U.S. Vice President Joe Biden to hold direct talks, denting hopes for the resolution of disputes over Tehran's nuclear programme.

Increasing unrest in Syria and Tunisia are further supporting oil prices as investors fear supply disruptions in the Middle East, the world's largest oil-producing area.

"Any uncertainty over the Iranian crisis tends to heighten prices. With the rejection of bilateral talks, the likelihood of the embargo on Iran continuing or increasing is there," said Lewis-Davies of BNP Paribas.

U.S. crude was also under pressure after data showed a rise in oil inventories. Crude stocks rose to 371.7 million barrels last week and have been building to near-record seasonal highs. The increase is partly because domestic oil production has reached its highest in nearly 18 years. (Additional reporting by Ramya Venugopa in Singapore; Editing by David Goodman)



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