Oil prices rose on Tuesday as optimism about the U.S. economic growth, anxiety about Iran's nuclear program dispute with the West and unrest in Nigeria overrode concerns about Europe's economy and debt crisis.
"Favorable U.S. economic guidance has taken center stage of late in the process of temporarily pushing euro zone debt issues to the backburner," Jim Ritterbusch, president at Ritterbusch & Associates, said in a note.
"Of course, the Iran factor has also facilitated some oil price strength," Ritterbusch added.
On the heels of last week's brighter U.S. employment data, economic optimism added support for oil prices as U.S. stocks hit a five-month high after strong import data from major copper consumer China and a bullish forecast by Alcoa pointed to a stronger global economy.
Firm technical support levels and tests of resistance also were cited by brokers and analysts as helping keep oil's trajectory in a higher direction.
Brent February crude rose 83 cents to settle at $113.28 a barrel, pushing back above its 200-day moving average of $112.70 after closing below that level on Monday. The 200-day moving average remains a key level of technical support, said Olivier Jakob of Petromatrix. First resistance was pegged at $114, where recent rallies have run out of steam.
U.S. February crude rose 93 cents to settle at $102.24 a barrel, having reached $103.41, but unable to push above the consecutive intraday peaks at $103.74 and $103.73 struck last week. Support held above the $100 level on Monday, when the intraday low was $100.10.
U.S. crude's discount to Brent narrowed slightly to near $11 a barrel from $11.14 on Monday. Analysts and brokers cited the more positive sentiment about the U.S. economy and weak demand in Europe as among the possible factors for Brent's narrower premium.
Brent total trading volume already was 37 percent above its 30-day average in post-settlement trading, with U.S. turnover 19 percent above its 30-day average. Implied volatility, as measured by the Chicago Board Options Exchange's Oil Volatility Index traded lower a fifth consecutive session and intraday had fallen to its lowest level since Dec. 23 at 35.44 percent.
U.S. heating oil and gasoline futures also strengthened. The euro edged higher a second straight day against the dollar as risk appetite improved and eyeing a European Central Bank meeting and upcoming debt auctions.
IRAN AND NIGERIA SUPPLY WORRIES
A day after Iran confirmed that it has started enriching uranium inside a mountain and has sentenced an American to death for spying, European Union governments agreed to move up a week to Jan. 23 a meeting of foreign ministers expected to decide on an embargo of Iranian oil.
The volume of Iranian crude oil stored at sea has risen to as much as 8 million barrels and is likely to increase as Tehran struggles with sanctions and a seasonal refinery slowdown, shipping sources said.
Japan has asked Saudi Arabia and the United Arab Emirates (UAE) to supply it with more oil if sanctions reduce its oil imports from Iran. Potential supply risks also loomed in Nigeria, where trade unions began a second day of strikes to protest the removal of fuel subsidies, though the strike has so far not affected oil shipments from Africa's largest exporter.
China's exports and imports grew at their slowest pace in more than two years in December, though crude imports were up 5 percent in December year-on-year. But some analysts pegged the robust crude imports to stockpiling ahead of the lunar new year and for strategic inventories. A slowdown in China's trade growth raised some concern about the economy of the world's second-largest oil consumer.
U.S. retail gasoline demand fell last week versus the previous week and also against the year-ago period, MasterCard said in a weekly report. U.S. crude stocks were expected to have risen 800,000 barrels last week, with refined products stockpiles also rising, a Reuters survey of analysts on Tuesday showed. Industry group the American Petroleum Institute issues its inventory report at 4:30 p.m. EST (2130 GMT) on Tuesday.
(Additional reporting by Gene Ramos, Jeffrey Kerr in New York, Seng Li Peng in Singapore and Alex Lawler in London; Editing by Marguerita Choy)