Oil holds above $90, looks to US employment

Oil held above USD 90 on Thursday as upbeat private US payroll data helped markets recover from a mid-week slump on expectations for a sustained economic recovery at the world's top crude consuming nation.

US crude for February added 9 cents to USD 90.39 a barrel at 0211 GMT after earlier trading as high as USD 90.71.

Prices touched a 27-month high of USD 92.58 in the first trading day of the year and tumbled to as low as USD 88.10 on Wednesday, before rebounding with the payroll data.

"It's general optimism about the commodity market because of pretty good data coming out of the United States," said Mark Pervan, a senior commodities analyst at ANZ in Melbourne.

"There's some volatility related to the strength of the dollar, but the market is certainly getting positive for demand."

Traders were looking for monthly US government data on Friday to confirm the increase in payrolls reported by processing company ADP Employer Services on Wednesday.

Private employers added 297,000 jobs last month, ADP said, the largest gain on ADP records dating to 2000. US nonfarm payrolls probably increased by 140,000 in December, a Reuters survey showed.

Friday's non-farm payrolls report "will finish it off," Pervan said. "The likelihood is that we will see a pretty good number."

Oil fell early on Wednesday after suffering the biggest single-day drop since mid-November a day earlier as the dollar strengthened. An appreciation of the greenback typically weighs on commodities as they become more expensive for buyers using other currencies.

But a larger-than-expected drop in US crude inventories last week also bolstered prices. Inventories fell by 4.16 million barrels in the final week of 2010, according to a weekly report from the Energy Information Administration on Wednesday.

Over the past five weeks, US crude inventories have fallen by more than 24 million barrels, their biggest five-week decline since mid-2008, reducing a surplus that has prevailed for the past two years. Oil companies traditionally reduce US crude inventories at the end of the year for tax purposes.

Still, gasoline stockpiles rose about 11 times as much as expected, adding 3.29 million barrels, while distillate stocks also climbed by a larger-than-expected 1.15 million barrels, according to the EIA.

Crude inventories at the key Cushing, Oklahoma hub rose 858,000 barrels to 37.49 million barrels, helping depress the value of US benchmark West Texas Intermediate (WTI) relative to European marker Brent.

Front-month ICE Brent futures traded at a premium bigger than USD 5 a barrel to the equivalent WTI contract.

A chemical plant fire at the Dutch Moerdijk industrial zone which affected shipping traffic in Europe's busy Rotterdam-Antwerp ports also boosted Brent relative to US crude. The fire did not impact Royal Dutch Shell's oil refinery there.

In other markets, Japan's Nikkei average rose to its highest level in nearly eight months on Thursday after the dollar jumped against the yen following the surprisingly strong US jobs data.

The payroll figures also ignited a broad commodities rebound on Wednesday, a day after prices fell their most in seven weeks.

Analysts said optimism that the US economy was recovering more quickly than thought boosted the demand outlook for commodities, which finished 2010 as the top asset class.