UPDATE 1-Oil trades near 25-month high; Brent in backwardation

Fri Dec 3, 2010 12:39pm IST

 * Brent near 26-mth high, backwardated first time since 2008
 * Technicals show U.S. crude at $91 [ID:nL3E6N302E]
 * Coming Up: U.S. Non-farm payrolls Nov; 1330 GMT

 (Recasts headline, adds China policy, updates prices)	
 By Alejandro Barbajosa	
 SINGAPORE, Dec 3 (Reuters) - Oil was steady near 25-month 
highs on Friday following a slew of upbeat U.S. economic data 
that boded well for demand from the world's top user, ahead of 
a jobs report expected to show employment expanded for a 
second straight month in November.	
 U.S. crude for January fell 2 cents to $87.98 a barrel at 
0706 GMT, still headed for a second straight weekly gain, 
after ending at $88 on Thursday, the highest settlement since 
October 2008. Prices touched $88.63 on Nov. 11, the highest 
intraday price in 25 months.	
 Jobs, home sales and retail sales data from the U.S. on 
Thursday pointed to a sustained economic recovery, while 
statistics earlier this week showed factory activity in China, 
the world's second-largest oil user, reached a seven-month high.	
    China will switch to a prudent monetary policy 
from a moderately loose stance, the Communist Party's top 
leaders decided on Friday, a change that could pave the way 
for more interest rate increases and lending controls, the 
state Xinhua news agency reported. [ID:nTOE6B2048]	
 While talk of higher rates in China has kept a lid on oil 
price gains, analysts do not expect to see much of a dent in 
the country's appetite for crude.	
 "While financial risks remain, we feel that the increasing 
synchronicity of global economic growth provides a resurgent 
force to physical commodity demand," JP Morgan analysts headed 
by Lawrence Eagles said.	
 The European Central Bank resisted pressure on Thursday to 
commit to a major bond-buying program to contain the euro zone 
debt crisis, but traders said the ECB had been quietly buying 
bonds anyway, boosting the euro and raising the appeal of 
riskier assets, including commodities. [ID:nLDE6B10I4]	
 "Oil, like most global markets, has been buffeted by 
concerns surrounding the euro zone problems and their 
potential broader implications," JP Morgan said.	
        
 GOOD-BYE CONTANGO	
 Rising oil demand from emerging and developed economies is 
also changing the price structure of crude futures markets. 
ICE Brent contracts for earliest delivery or settlement are 
now trading at a premium to later contracts for the first time 
since May 2008, according to Barclays Capital.	
 ICE Brent for January LCOc1 was unchanged at $90.69 by 
0630 GMT, after touching $90.84 on Thursday, the highest price 
in 26 months. The February contract was down 2 cents at $90.63.	
 This pricing structure, known as backwardation, is 
replacing the prevalent so-called contango of the past two 
years, where earlier contracts traded at a discount to future 
ones. Contangos are reflective of oversupplied markets, while 
the turn to backwardation signals a tightening balance. 
[ID:nL3E6N30BB]	
 "The combination of the effect of falling prompt inventory 
at the front of the curve and a healthy degree of producers 
selling along the curve has helped to pivot the (Brent) curve 
back towards flat," Barclays Capital analysts headed by Paul 
Horsnell said in a weekly report.	
 U.S. nonfarm payrolls likely increased last month by 
140,000, according to a Reuters poll, amid strong gains in 
private hiring reported on Wednesday. The report is due at 
1330 GMT. [ID:nN30116474]	
 Fresh signs the U.S. economy has broken out of its summer 
soft patch emerged on Thursday as data showed a gauge of 
jobless benefits hit a new two-year low last week and pending 
home sales unexpectedly rose in October. [ID:nN02209260]	
 The picture also brightened as retailers recorded their 
best sales gains in four years in November, with shoppers 
drawn in by deals throughout a month that culminated with a 
surge in "Black Friday" traffic.	
 Both U.S. heating oil and gasoline futures rallied on 
Thursday, supporting crude's rise. Heating oil rose amid 
colder temperatures in the U.S. Northeast, the biggest heating 
oil market. Gasoline gained on regional supply tightness in 
the key East Coast market.	
 Household, government spending and exports drove euro zone 
economic growth in the July- September period, official data 
showed on Thursday. [ID:nLDE6B118S]	
    In other markets, the Nikkei ended flat 
holding on to its Thursday's gains of almost 2 percent, after 
hitting a six-month intraday high of 10,254.00. 
	
 (Editing by Himani Sarkar)	
 
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