SINGAPORE Brent crude futures held above $111 per barrel on Monday, supported by signs that the world's biggest economies are on a steady recovery path, but inventory data showing weak fuel demand in the United States curbed gains.
U.S. employers kept up an even pace of hiring and the country's vast services sector expanded briskly, reports on Friday showed. Coupled with earlier data showing expansion in the manufacturing sector in the United States and China, this reinforced expectations for buoyant oil demand this year.
Front month Brent futures rose 1 cent to $111.32 per barrel by 0526 GMT, after rising 0.6 percent last week.
U.S. crude slipped 26 cents to $92.83 per barrel after inventory data on Friday showed a build-up in refined products and a sharp drop in imports, triggering worries of weak implied fuel demand.
It added 2.5 percent last week after U.S. lawmakers reached a last minute agreement to avert a so-called "fiscal cliff", or tax hikes and spending cuts that had threatened economic growth.
"Oil markets are still tracking the positive news from the U.S., with the fiscal cliff somewhat out of the way for now," said Natalie Rampono, senior commodity strategist at ANZ.
"China looks to be improving," she added. "We are expecting an improvement in oil demand from China as well."
ANZ expects Brent to end the first quarter at $118 per barrel and U.S. crude at $96 per barrel.
Oil markets took a cue from U.S. stocks, which ended at a five-year high on Friday, boosted by the U.S. fiscal deal and data showing steady hiring by employers, as well as brisk activity in its key services sector.
Manufacturing in top energy consumers the United States and China grew in December, suggesting oil demand may remain well supported.
Global markets will now be watching the U.S. Federal Reserve's stance on monetary easing, with top Fed officials and some U.S. economists suggesting the central bank might halt its asset purchases this year, she added.
"The discussion among Fed officials of when to scale back, or halt, asset purchases led investors to start pricing in an earlier exit for the Fed," Bank of America-Merrill Lynch economists said in a report, adding that the bank expected quantitative easing to continue into 2014.
This week's focus will also be on the European Central Bank and its moves to help pull the crisis-ridden region out of recession.
Gains were limited after data showed net crude imports by the world's biggest oil consumer fell to their lowest in a decade, while stocks of refined products rose, suggesting weakness in implied demand.
Crude stocks plunged 11.1 million barrels in the final week of 2012, the biggest drop since February 2001, which analysts linked to a drawdown by refiners for year-end accounting purposes.
"To some extent the reported build in gasoline and distillate stocks reflected weak demand caused by lower deliveries to wholesalers also seeking to minimise year-end working capital," BNP Paribas analysts said in a report.
Investors mostly treated the spike as a year-end phenomenon that will be reversed in coming weeks, they added.
Investors will also be monitoring developments in the Middle East, where an escalating civil conflict in Syria prompted the U.S. to send troops to protect neighbouring Turkey from its spillover effect.