Brent climbs above $108, positive China survey offsets US stocks build

Reuters

* China HSBC flash PMI hits 7-mth high in Oct

* U.S. EIA reports big rise in U.S. crude stocks

* Brent/WTI spread narrows after widening to $13 in previoussession

By Jessica Jaganathan

SINGAPORE, Oct 24 (Reuters) - Brent crude futures climbedabove $108 a barrel on Thursday after positive economic newsfrom China, the world's second-largest oil consumer, helpedoffset another rise in U.S. crude stockpiles that had depressedprices overnight.

Strong new orders in October drove the biggest expansion inChina's manufacturing sector in seven months, according to apreliminary Markit/HSBC survey of purchasing managers, providingfurther evidence the economy was stabilising.

But U.S. crude oil inventories rose by 5.2 million barrelslast week, the fifth-largest build of the year, with stocks atthe Cushing hub rising for the second week in a row, showingthere was ample supply in the world's largest oil consumer.

Brent crude oil futures had gained 37 cents to$108.16 a barrel by 0709 GMT.

U.S. crude oil futures gained 78 cents to $97.64after ending at $96.86 a barrel in the previous session, thelowest settlement price since July 1.

"Brent will likely respond in a stronger way to the PMI dataas we have seen signs of stabilisation in China's growth ... butwe expect China to maintain a cautious monetary policy in thecoming months," said Vyanne Lai, an economist at NationalAustralia Bank.

"So unless there's some impetus from geopolitical risk inthe Middle East, we don't see Brent rising too strongly in thecoming months."

She added that recent high-level talks between Iran and theUnited States, lingering uncertainties over the U.S. budget andrising oil production in the United States and Canada pointed toweaker oil fundamentals and would limit any gain in prices.

The positive news from the Markit/HSBC Purchasing ManagersIndex (PMI), the earliest reading of China's monthly economicperformance, follows a pick-up in economic growth in the thirdquarter.

But many economists see Chinese growth slowing as globaldemand remains soft and Beijing moves to restructure the economytowards one driven more by consumer demand than investment andcredit.

Chinese money market rates have hit three-month highs asregulators show signs of concern that loose liquidity might befuelling another round of risky credit growth.

U.S. CRUDE STOCKS BUILD

Total U.S. crude oil stockpiles have risen by 22 millionbarrels over the past four weeks, the biggest four-week buildsince April 2012 and the second largest since February 2009,according to data from the U.S. Energy InformationAdministration (EIA).

The Brent/WTI spread narrowed to around $10.50after hitting $13 a barrel in the previous session, the widestsince April.

Market watchers said the earlier move was overdone and thespread between the two oil benchmarks would probably narrowfurther as crude stocks drop back again and U.S. crude pricesrise.

"With refinery maintenance winding down and crude runsexpected to pick up again, we expect the trend to reverse nextmonth. While a boost in runs would contribute to driving downcrude stocks, we also see U.S. refiners taking advantage of thecurrent discounted crude prices and swiftly increasingutilisation rates," JBC Energy analysts said in a note.

"Thus, we would not be surprised to see run rates reachingclose to 90 percent towards the beginning of winter, similar towhat was witnessed last year."

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