Oil rises on hopes for economic stimulus

LONDON (Reuters) - Oil prices edged up close to $114 a barrel on Tuesday as expectations for further Chinese and U.S. economic stimulus, which could boost demand, added to supply constraints from sanctions on Iran and tighter North Sea supplies.

Brent crude rose 4 cents to $113.64 a barrel by 1300 GMT after closing up 65 cents on Monday at its highest settlement since May 3.
U.S. crude firmed by 27 cents to $93.00 a barrel.
The euro zone's debt-ravaged economy shrank in the second quarter as anticipated after flatlining in the first quarter, data showed, while economists worried that Germany's growth could be snuffed out.
Market players were hoping that U.S. Federal Reserve Chairman Ben Bernanke would announce a third round of quantitative easing during a speech in September and looked to forthcoming data for further indications as to its probability.
"(Euro zone data) is already imbedded in the price after earlier indicators. Investors are building in expectations of a QE3 ahead of the Jackson Hole speech by Bernanke," said Harry Tchilinguirian, an oil analyst at BNP Paribas in London.
QE3 would mean a fresh injection of dollars into the economy, weakening the currency and consequently pushing up oil prices.
China is also expected to respond further to its slowing growth rate after two rounds of interest rate cuts. Stimulus could come in the form of more infrastructure projects, which would entail an intensive use of base metals and energy and also support oil prices.
"On the demand side you can be optimistic. China can maintain some oil demand growth with its infrastructure projects," Tchilinguirian said.
Investors also were keeping a watch over tensions in the Middle East that could affect supplies.
The effects of the EU Iranian oil embargo, which took effect on July 1, have continued to ripple through the physical market, and production from countries including Yemen, Syria and Sudan was still out of the picture. Adding to that tightening market was the prospect of record-low North Sea production in September.
"The Brent field problems, reduced stocks in the U.S., hurricane season, Iran tensions and threats from Israel to crush their nuclear ambitions, unrest in Syria are all adding to the melting pot," said Robert Montefusco, an oil trader at Sucden Financial.
NORTH SEA FACTOR
Analysts at ANZ said in a daily note that Brent might stabilize in a range of $110-115, but an increase in tension in the Middle East or a steeper decline in North Sea output could bring "the $120 technical target into play".
A fall in North Sea production of about 17 percent in September from August, mainly due to a drop in Forties crude output, supported the European benchmark and resulted in steep backwardation between the front months.
The projected output fall has also contributed to the widening WTI-Brent spread, which has reached a four-month high over $20 a barrel.
That balanced against the narrowing effect of the Seaway pipeline, which in mid-May began pumping crude stocks from Cushing, Oklahoma to the U.S. Gulf coast.
U.S. CRUDE STOCKS
Data on U.S. crude stocks due later in the day from industry group the American Petroleum Institute (API) is expected to provide pointers on demand growth in the world's largest oil consumer.
U.S. crude stockpiles were forecast to have fallen by 1.6 million barrels in the week to August 10, declining for a third straight week on lower imports, a preliminary Reuters poll of seven analysts showed on Monday.
The API data will be followed by more closely watched numbers from the U.S. Energy Department on Wednesday.
(Reporting by Julia Payne in London, Manash Goswani in Singapore,; Editing by Jane Baird)
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