Oil gains on Fed QE hint hopes

LONDON  (Reuters) : Brent crude oil gained on Wednesday, with investors optimistic that the U.S. Federal Reserve may give hints of more monetary easing, supporting demand sensitive assets.

Brent crude rose 44 cents to $118.60 a barrel by 0909 GMT, while U.S. crude was up 48 cents at $104.03.

A third round of monetary stimulus or quantitative easing, also called QE3, via bond-buying by the Fed should boost liquidity in markets and lift appetite for riskier assets such as oil.

Equities also gained changed ahead of the statement to be released after the U.S. central bank's meeting later in the day.

"If there are hints at more quantitative easing, oil prices will shoot up again, as they are well off their highs," Michael Hewson, analyst at CMC Markets.

However, he said investors may be disappointed.

"People can speculate as much as they like. But it's not going to happen before the (presidential) election (in November) unless growth falls off sharply."

The latest U.S. data was mixed, showing February home prices rising for the first time in 10 months while a measure of consumer confidence last month fell more than expected.

"The overall picture for the global economy remains a little blurry at the moment. We don't have resolution on the debt crisis in Europe, and in the U.S. we are still trying to digest their data," said a senior crude trader based in Singapore. "And for China, well, it seems to have stabilised. But what is 8 percent in the context to a sluggish global economy?"

China's economy, the world's second largest, grew an annual 8.1 percent in the first quarter, its weakest pace in nearly three years.

While China's overall growth remained healthy, the slower rate has raised concern among investors, especially at a time when the debt-ridden euro zone's economic slump is deepening and the U.S. economic recovery remains fragile.

Also supporting U.S. crude, oil inventories in the world's top consumer fell last week for the first time in five weeks, data from the American Petroleum Institute (API) showed on Tuesday, against expectations for a build.



U.S. crude stockpiles fell by 985,000 barrels in the week to April 20, compared with analyst expectations of a 2.7-million-barrel increase.



Gasoline stocks fell 3.6 million barrels, dropping more sharply than an expected 900,000 barrels, and distillate inventories fell by 3.56 million barrels, the API said.



The U.S. Energy Information Administration's own stockpiles report is due later on Wednesday.



U.S. crude oil stockpiles were expected to have increased for a fifth straight week last week due to another increase in imports, an expanded Reuters poll of analysts showed on Tuesday.



Recent gains in U.S. oil prices have narrowed Brent's premium over WTI crude <CL-LCO1=R>. The premium fell as low as $12.99 last week, the smallest since February.



Supply disruption concerns linked to key producer Iran continue to be in focus although tensions between Tehran and the West seemed to have cooled momentarily.



Iran will meet with the six world powers -- the United States, Russia, China, German, France and Britain -- in Baghdad on May 23 for nuclear talks.



The West alleges that Iran is developing atomic weapons, but Iran, which has refused to stop enriching uranium, insists its nuclear program is for civilian use.