Brent oil holds above $109 on economic data, Ukraine supports

By David Sheppard

LONDON (Reuters) - Brent crude oil edged higher above $109 a barrel on Wednesday after stronger-than-expected economic data from China and Europe reinforced the outlook for global demand growth, and as the unfolding crisis in Ukraine deterred sellers.

Last week's peace deal in Ukraine formally ended on Wednesday as the government said an "Easter truce" was over, vowing to eliminate pro-Russian armed groups in the east of the country.

China, the world's second-biggest oil consumer, reported a fourth straight monthly downturn in factory activity, but analysts also saw initial signs of stability due to government efforts to underpin growth.

"China is slowing down and that's a concern, but people don't expect it to fall off a cliff," said Tony Nunan, an oil risk manager at Mitsubishi Corp.

"Geopolitical concerns over Ukraine, unfinished issues such as Syria and Libya, are keeping prices supported."

The crisis in Ukraine has supported oil prices due to fears Western powers may increase sanctions against Russia, the world's second-largest crude exporter.

Brent crude for June delivery rose 11 cents to $109.38 by 1031 GMT, after ending 68 cents, or 0.6 percent, lower on Tuesday in its biggest one-day drop in two weeks.

U.S. crude for June delivery fell 41 cents to $101.34 a barrel, after losing more than 2 percent during the previous session as the May contract expired, its steepest decline in nearly four months.

The slide in U.S. crude widened its discount to Brent to the biggest in a month. The spread between the two global benchmarks is now close to its 200-day moving average of $8.18 a barrel, a key technical indicator watched by traders.

The euro zone's private sector has started the second quarter on its strongest footing in nearly three years, surveys showed on Wednesday, led by growth in Germany this month after a slight slowdown in March.

U.S. OIL INVENTORIES

Oil also drew support from a report showing stockpiles in the world's top consumer, the United States, rose more slowly than expected last week.

Crude inventories increased by 519,000 barrels in the week ended April 18, data from industry group the American Petroleum Institute showed, compared with analysts' expectations for a gain of 2.3 million barrels.

Stocks at the Cushing, Oklahoma delivery point of the U.S. crude contract fell by 781,000 barrels, while gasoline stocks nationally fell by 3.4 million barrels, indicating healthy demand as the summer driving season gets under way.

Traders were awaiting data to be released later on Wednesday by the U.S. government's Energy Information Administration to get a clearer picture on the country's demand outlook.

U.S. crude oil stocks have surged 43 million barrels since mid-January and jumped 10 million barrels in the week to April 11, well beyond expectations.

Stocks on the Gulf Coast have risen to the highest level on record as increased pipeline capacity helps clear a bottleneck around Cushing, helping to realign U.S. crude prices with Brent.

Investors are also keeping an eye on Libya's progress in ramping up exports. The North African nation's oil production is around 220,000 barrels a day as several oilfields remain closed due to protests, a spokesman for state-run National Oil Corp said.

(Additional reporting by Manash Goswami in Singapore; Editing by Dale Hudson)