Oil above $101 on easing liquidity fears, Canada floods

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Oil rose above $101 a barrel on Tuesday, rebounding from a three-week low, as investor concern eased about a liquidity crunch in China and as Canadian pipeline closures threatened exports to the United States.

Chinese central bank officials sought to reassure investors liquidity would be kept at an appropriate level to support growth, and two Federal Reserve officials on Monday downplayed the notion of an imminent end to monetary stimulus, in comments that supported equities and commodities.

Brent crude gained 28 cents to $101.44 a barrel by 1345 GMT, after reaching a three-week low of $99.67 on Monday. U.S. oil rose 16 cents to $95.34.

"Stock markets are up and commodity prices are up across the board," said Carsten Fritsch, analyst at Commerzbank in Frankfurt, adding that the Chinese officials' comments had prompted a change in market sentiment.

"The pipeline interruption has already resulted in Canadian oil sand production being scaled back, and is likely to contribute to lower U.S. oil imports and falling U.S. inventory levels," he said.

Brent had dropped more than $6 from its high near $107 last week to Monday's three-week low, alongside losses in other assets including equities, after the Federal Reserve's signal that the era of cheap central bank money was coming to an end.

Another bearish factor was concern over attempts by China, the world's second-largest oil consumer after the United States, to rein in excessive credit growth.

On top of the easing concern about liquidity, the record flooding in Canada's main oil-producing province lent U.S. crude particular support, further narrowing its discount to Brent.

Canadian pipelines that move almost 1 million barrels per day of Alberta oil sands crude, much of it bound for the United States, were shut on Monday after a spill on a smaller line was found, a spokesman for operator Enbridge Inc said.

As a result, the discount of U.S. crude, also known as WTI, to Brent <CL-LCO1=R> narrowed to $5.68 a barrel on Tuesday, its smallest since November 2011.

"People think that's going to cut back some of the surplus that has kept WTI so weak for the last few years," said Christopher Bellew, an oil broker at Jefferies Bache in London.

The next snapshot of U.S. supplies is due later on Tuesday from industry group the American Petroleum Institute. U.S. crude stocks are expected to fall by 2 million barrels in the week to June 21. The API's report is due out at 2030 GMT.



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