Brent crude oil rose to a 27-month peak above $99 a barrel on Friday, closing in on $100 ahead of the February contract's expiration and shrugging off China's move to lift lenders' reserve requirements that had weighed on US oil prices. ICE Brent futures have traded above US crude since August last year, supported by a combination of dwindling North Sea crude supplies and disruption of oil grades priced off it, traders said.
The strength of US equities and Brent helped US crude turn briefly positive after being pressured by China's move to lift lenders' reserve rate requirements by 50 basis points in its ongoing effort to tame inflation. In London, ICE Brent crude for February rose 59 cents, or 0.6 percent, to $98.65 a barrel, at 2:07 p.m. EST (1907 GMT), having traded as high as $99.20, the highest since Brent reached $100.31 in October 2008. The February contract expires at the end of Friday's trading.
US crude oil for February delivery rose 4 cents, or 0.04 percent, to $90.44 a barrel, in choppy trading having bounced off its earlier $90.10 low. The expiration of February crude options on Friday added to the price volatility. "Equities and oil seem a bit toppy, and US crude hasn't been able to push to far above $92, but if you get a $100 Brent print then US crude should take off," said Richard Ilczyszyn, senior market strategist at Lind-Waldock in Chicago.
"With gasoline prices this high you may start to see some demand drop and the bigger story may be the China reserve rate hike and its impact on commodities." Stronger-than-expected earnings from JPMorgan Chase & Co lifted the stock market, offsetting lukewarm economic data and putting the S&P 500 on track for its seventh straight week of gains.
Early on Friday, crude prices had a muted reaction to several US economic reports. But rising gasoline prices pushed down US consumer sentiment in early January, overshadowing an improved job outlook and passage of temporary federal tax breaks, a Thomson Reuters and the University of Michigan survey released on Friday showed.
December US retail sales rose slightly less than expected, but total 2010 sales reversed two years of contraction with the biggest gain in more than a decade. Reaction to an increase in the Consumer Price Index and rising industrial output led by utility output boosted by cold weather was tempered by the China reserve requirement hike. China's recent tightening policy has prompted worries that Beijing's appetite for buying oil and other commodities could decrease.
That was China's seventh increase since early 2010, prompting concern that its appetite for buying oil and other commodities could be curbed. The discount for US crude futures' benchmark West Texas Intermediate (WTI) against Brent reached fresh 23-month highs over $8 a barrel, the widest discount since February 2009. The expiry of the February Brent futures contract on Friday had analysts expecting it to erode some of the strong differential, as February had been trading at a premium to March. But the March Brent contract's gains were outpacing the February contract on Friday.
Total Brent trading volume was above 449,000 lots, above the 250-day average of 381,046 lots, according to Reuters data. Volume was 654,821 on Thursday. Total US crude volume stood at more than 726,000 lots traded, above the 250-day average of 679,000 lots.