Oil rises above $112 on central bank comments

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Brent crude oil rose above $112 a barrel on Thursday on renewed confidence that major central banks will keep taking steps to support the global economy.

Brent crude for April delivery gained 55 cents to $112.42 a barrel by 1300 GMT, after earlier rising to $112.37. It slipped to $111.65 on Wednesday, its weakest since Jan. 22.

The benchmark crude is still down around 2.8 percent this month, putting it on track for its steepest monthly drop since October.

U.S. oil fell 1 cent to $92.75 and was on track for an almost 5 percent drop this month after three straight monthly gains.

Strong domestic demand for Italian debt in a sale on Wednesday reduced worries about its political deadlock and helped boost appetite for riskier assets such as oil, equities and other commodities.

European Central Bank President Mario Draghi reiterated on Wednesday the ECB would continue injecting liquidity into markets.

BERNANKE BOOST

Comments from U.S. Federal Reserve Chairman Ben Bernanke, who testified before a congressional panel for a second straight day on Wednesday, were seen as implying the central bank would maintain its bond-buying strategy to support the economy.

Oil hit its lowest level in over a month on Wednesday after data showed U.S. crude stockpiles rose for a sixth week last week, but a more optimistic outlook for growth due to central bankers' comments brought money back into the commodity.

"It's hard to resist the stronger equities and more positive mood in Europe, so for the short term it should be bullish," Bjarne Schieldrop, an analyst at SEB in Oslo, said.

In the longer term, there are bearish factors that are likely to keep a cap on strength, he said. One potential drag could come from a political deadlock over the U.S. budget.

Without a deal from the White House and Congressional Republicans, $85 billion will automatically be slashed from the budget from Friday, which President Barack Obama warned could shave at least 0.6 percentage point off economic growth.

Despite Bernanke's reassurance, investors remained cautious over the prospect of a dramatic rise in demand from the U.S., the world's top oil consumer, after data showed its inventories of crude oil rose for a sixth straight week last week.

"While confidence is high, there are still risks present. Negative political news from Italy may provide headwinds, while the looming March 1 deadline for the U.S. sequester could trigger $85 billion of across-the-board budget cuts," said Miguel Audencial, a sales trader with Sydney-based CMC Markets.

Worries about Iran's nuclear ambitions have helped support oil prices, but on Wednesday Iran gave an upbeat assessment of two-day talks with six world powers, which ended with an agreement to meet again in Istanbul in March.

"The outcome was as good as you could expect it to be, so that is fairly bearish (for the oil price), and there is unlikely to be any disappointment until the next meeting," SEB's Schieldrop said.

Analysts in a Reuters poll forecast that crude oil prices would fall this year due to weak demand in many industrialised nations and improving global supply.

In a monthly survey of 27 analysts, the consensus forecast was for Brent crude oil to average $110.10 per barrel in 2013, down from an average of $111.70 last year. But the figure was up slightly from last month's forecast of $109.70 for this year. (Editing by Jane Baird and James Jukwey)



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