Oil prices rise on demand hopes

(NEW YORK) - Oil prices climbed Thursday on the back of expectations of higher demand as well as a European Union pledge to support debt-stricken Greece and positive US jobs data.

The market was however wary on the eve of a key inventories report by the United States, the world's largest energy consumer.

New York's main futures contract, light sweet crude for delivery in March, rose 76 cents to close at 75.28 dollars a barrel.

London's Brent North Sea crude for March delivery added 51 cents to 73.05 dollars a barrel.

Investors preferred to look at the positive news as they took positions.

"You have further decent data coming from the International Energy Agency, that's helping the market a little bit, and you have more optimism regarding the broad economy," said Bart Melek, a commodity strategist with BMO Capital Markets.

"Certainly, you have got the positive influence of the Greek debt issue that is helping," he said.

The International Energy Agency forecast on Thursday that world oil demand and prices would rise more than previously expected this year, driven higher by strong growth in emerging economies, as it revised its earlier forecasts.

The Paris-based agency said demand was now expected to be 86.5 million barrels per day in 2010 compared with a forecast last month of 86.3 million, while average prices will rise to 75 dollars per barrel from 58 dollars in 2009.

Global daily demand is now estimated at 84.9 million barrels per day (mbd) in 2009, and thus the IEA is predicting a 1.6-mbd increase.

Demand growth is expected to come "entirely" from outside the Organisation for Economic Cooperation and Development (OECD), a grouping of 30 developed economies including Britain, France, Germany, Japan and the United States.

The market also was given a temporary respite after Europe pledged solidarity Thursday with Greece, but stopped short of offering an immediate injection of hard cash.

While the European Union signaled it would use "determined" measures to defend its core, the 16-nation eurozone, the stance was seen as not enough by the broader market, some analysts said.

"The Greek government believes they do not need financial support," insisted European Commission chief Jose Manuel Barroso, who urged an end to "speculation" about bailout "scenarios that are so far not present."

Investors also mulled the latest weekly snapshot of the US labor market showing a sharp drop in new weekly claims for unemployment insurance to 440,000.

Claims had been elevated over the last several weeks, and this latest level is more in line with the general downward trend that has persisted for the past year, analysts said. Unemployment is a major obstacle to US economic recovery.

"This is the first pleasant surprise in the claims numbers for some time," said Ian Shepherdson, chief US economist for High Frequency Economics.

Barclays Capital said in a report that oil prices could edge even higher.

"Indeed, we believe that there is still room for some further modest upside moves in the coming weeks, before the momentum gathers once again in the second quarter, as global oil balances continue to improve gradually," it said.

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