Oil up at around $116 on stimulus hopes

LONDON (Reuters) - Oil prices rose for a fourth day to around $116 per barrel, supported by hopes for further stimulus measures from central banks in the United States and Europe, and a slow restart in the Gulf of Mexico after Hurricane Isaac.

Front-month Brent crude futures were up 30 cents to $116.08 a barrel by 0827 GMT. The contract had earlier climbed as far as $116.36, a few cents short of a three-week high.

U.S. crude futures were up 53 cents to $97 a barrel from Friday's settlement. U.S. markets were shut on Monday for the Labor Day holiday.

Analysts said the market was in a bullish mood ahead of a European Central Bank (ECB) meeting on Thursday and a two-day gathering of U.S. Federal Reserve policymakers next week.

"The main driver at the moment is the expectation around an ECB announcement on Thursday - investors are looking for some indications of more bond buying," said Filip Petersson, Commodity Strategist at SEB Commodity Research.

"They are also looking to see if the U.S. non-farm payrolls on Friday will be bad enough to keep the door open for QE3."

ECB President Mario Draghi said on Monday that short-term sovereign bond purchases by the ECB would not breach European Union rules. This has raised expectations that on Thursday he will give details of a new debt-buying scheme to help deeply indebted eurozone members.

"We will remain on an upwards price trend running into this ECB meeting on the back of these stimulus hopes, despite weakening fundamentals in the oil market," said Carsten Fritsch, an energy analyst at Commerzbank in Frankfurt.

He said the worsening economic outlook suggests a deterioration in oil demand whilst supplies remain ample.

"Last week's OPEC production survey signalled continued over-supply, Russian crude oil production in August was the highest since the end of the Soviet Union, and Iraq has ramped up oil exports to the highest level in three decades, so there is plenty of oil in the market at the moment," he said.

But oil fundamentals are taking a back seat to monetary stimulus hopes, with Federal Reserve Chairman Ben Bernanke's speech at Jackson Hole last week keeping a third round of quantitative easing in play.

As well as Friday's U.S. non-farm payroll figures, the market is eyeing the U.S. Institute for Supply Management (ISM)data, due later on Tuesday.

"This is the main thing that could move markets in this session as we are very demand-side driven at the moment," said Petersson. "It's an important indicator for the Fed when making their decision on QE3."

The ISM is forecast to have improved to the psychologically important level of 50 in August, from 49.8 in July.

PRODUCTION OFFLINE

U.S. crude is also supported by the fact that nearly 60 percent of offshore crude oil production in the Gulf of Mexico is still offline after Hurricane Isaac, according to U.S. government reports.

"There seems to be more delay in starting up production," said Petersson. At the same time, most of the Lousiana oil refineries affected by the storm have restarted.

Tension between Iran and Israel continues to bubble away in the background, encouraging speculators to position themselves for an oil price spike.

"We are seeing speculative positions back at very high levels - the shorts have been falling quite heavily and the longs are building up again," said Petersson.

(Additional reporting by Ramya Venugopal and Wang Tao in Singapore; Editing by David Cowell)

Source: http://news.yahoo.com/brent-climbs-above-116-stimulus-hopes-031005809--finance.html

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