Oil Hits 2-Year High

Reuters

Oil inched up on Friday ahead of the release of closely watched U.S. jobs data, while North Sea Brent crude futures hit a fresh two-year high above $91 due to the extreme cold weather covering much of Europe.

The recent gains to the peaks have prompted major banks, JP Morgan Chase and Goldman Sachs, to place their long-term oil prices forecasts above $100 this week.

Continue Reading Below

U.S. crude futures for January rose 17 cents to $88.17 a barrel by 1204 GMT, after hitting the highest settlement price of $88.00 at Thursday's close.

ICE Brent crude futures rose 32 cents to $91.01 a barrel, after briefly touching a fresh two-year high of $91.13 earlier on Friday.

Global markets were mostly steady ahead of the U.S. Labor Department releasing its monthly report on jobs at 1330 GMT. Investors tend to avoid taking big positions ahead of closely watched data releases.

Nonfarm payrolls are forecast to have risen 140,000, with private hiring increasing by more than 100,000 for a fifth straight month in November, according to a Reuters survey.

The unemployment rate is forecast to have held steady at 9.6%.

"In the United States, (recent) economic data has remained healthy. The development would be the one aiming at $90 (a barrel), if (further) improvement is confirmed in the jobs data due out later today," Mizuho Corporate Bank said in its daily commodities research note, referring to U.S. crude.

U.S. crude has risen about 5% so far this week, following a slew of upbeat U.S. and Chinese economic data that boded well for demand from the world's top two energy consumers.

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 reached a seven-month high.

However, there have been signs that China may tighten its monetary policy further. Any slowdown to its economy may dent its immediate energy demand and cap any gains in oil prices.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.

ARCTIC WEATHER

Mizuho Corporate Bank also pointed out that oil, as an asset class, had been supported by the European Central Bank's commitment to extend its safety net to support vulnerable euro zone banks, maintaining financial market liquidity.

North Sea benchmark ICE Brent crude has risen more sharply, gaining about 5.8% so far this week, due partly to the Arctic weather freezing most parts of Europe and boosting energy demand in the short term.

The price structure of Brent futures has flipped into backwardation, or premiums on the prompt contract to longer-dated, which reflects the tightening of the immediate fundamentals.

The opposite structure is contango.

"The cold is definitely affecting oil - see Brent is in backwardation, while U.S. crude is still in contango," Thorbjrn Bak Jensen with Global Risk Management in Denmark said.

For the long term, oil analysts led by Lawrence Eagles with JP Morgan raised its price forecasts for 2011 to an average $93 for U.S. crude and $95 for Brent and said prices would average $104 and $105 in 2012, respectively.

Earlier in the week, Goldman Sachs said U.S. crude would average $110 a barrel in 2012.