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Oil rebounds but down on the week

Friday, February 22 07:45:08

Brent crude rebounded above $114 a barrel today but stayed on track for its largest weekly loss since early December, as investors focused on a debate in the United States on when it would pull the plug on its stimulus programme.

Brent fell nearly 2 percent on Thursday, its steepest drop since November, during a two-day rout fuelled by worries that the U.S. Federal Reserve could wind down its bond buying programme earlier than expected and that Saudi Arabia could raise its oil output.

Weak economic data out of the United States and the euro zone fuelled concerns that the global economy is still struggling.

Brent crude for April rose 49 cents to $114.02 a barrel by 0726 GMT. U.S. crude was at $93.09, up 25 cents, after hitting a six-week low in the previous session.

Brent is headed toward a 3 percent loss for the week, its largest such loss since the week ended Dec. 7.

"It's unlikely that the Fed would begin to wind down its QE programme until the U.S. economic growth is improving at a faster rate than currently," said Ric Spooner, chief market analyst at CMC Global Markets in Sydney.

The debate on whether the Fed should tighten its monetary policy continued on Thursday, although economic data is still pointing to a tepid recovery, supporting the case for the Fed to maintain the stimulus programme.

The Fed's asset purchases have resulted in a flood of liquidity that has fed a bid for riskier assets such as oil in a climate of ultra-low interest rates.

Investors will also watch the U.S. budget debate as President Barack Obama called Republican leaders on Thursday to resume negotiations.

"We still think Brent is toppish and we're not uber optimistic about the U.S. economy," said Jeremy Friesen, a commodities strategist at Societe Generale. "Maybe the market still doesn't appreciate the risk in the March sequester."

The sequester refers to spending cuts across the U.S. government due to kick in on March 1 that could hurt its economy and lead to job losses if the White House and Republicans cannot agree on how to deal with the budget crisis. ( C) Reuters