Oil rises on stimulus hopes, U.S. demand; Brent above $107

By Florence Tan

SINGAPORE (Reuters) - Brent climbed back above $107 a barrel on Wednesday while U.S. crude futures rose for a second day after Federal Reserve Chairman Ben Bernanke's reassurance about ultra-easy monetary policy continuing and on hopes of higher U.S. oil demand.

Investors also focused on talks restarting on Wednesday between major powers and Iran to curb Tehran's nuclear programme as a deal may involve easing sanctions on the OPEC producer that could lead to a rise in its crude exports.

Brent crude for January was at $107.12 by 0710 GMT, up 20 cents. The contract had posted on Tuesday its biggest daily fall in nearly two weeks as Libya resumed some oil exports.

The U.S. crude contract for December, which expires later on Wednesday, had risen 25 cents to $93.59 a barrel. It ended the previous session up 0.3 percent after hitting a five-and-half-month intraday low of $92.43.

The sharp drop in Brent had narrowed its premium to West Texas Intermediate (WTI) by more than $1 on Tuesday to about $13 as investors eyed stronger crude demand in the United States with the end of a refinery maintenance season.

"U.S. refineries are coming out of seasonal maintenance and the higher refinery capacity would boost production and draw down stockpiles," Phillip Futures analyst Tan Chee Tat said, adding that the Brent-WTI spread may fall below $10 a barrel by end-November.

Data from industry group the American Petroleum Institute showed on Tuesday refinery crude runs rose by 255,000 barrels per day last week. Crude inventories rose 512,000 barrels, less than the 900,000-barrel build predicted by a Reuters poll of analysts.

"WTI oil price now looks cheap compared to European Brent crude and holds better upside near-term as seasonal factors support an outperformance," ANZ's head of commodities research Mark Pervan said in a note. He sees fair value for the spread at $6-$8 a barrel.

Bernanke's comments late on Tuesday that indicate any stimulus tapering was unlikely to occur in the near term has also helped to support crude prices, Tan of Phillip Futures said.

Bernanke had said that the Fed will maintain its ultra-easy U.S. monetary policy for as long as needed and will only begin to taper bond-buying once it is assured that labour market improvements would continue.

In Geneva, world powers aim to clinch a preliminary deal to curb Iran's nuclear programme to end a long standoff and head off the risk of a wider Middle East war even as senior U.S. lawmakers urged the Obama administration to take a tougher line in negotiations with Tehran.

Investors remained wary of Libya's output despite the resumption of exports from the western Mellitah port on Tuesday after protests ended.

"Uncertainty still remains in that country and we do see fluctuations in production," Phillip Futures' Tan said. "It seems like the current government does not have enough ability to subdue labour unrest in the country."

(Editing by Muralikumar Anantharaman and Subhranshu Sahu)