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updated: 3/13/2012 7:13 AM

Oil rises to near $107 amid improving U.S. economy

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Associated Press

SINGAPORE -- Oil prices rose to near $107 a barrel Tuesday in Asia as traders bet an improving U.S. economy will boost demand at a time when the ability to increase crude production is limited.

Benchmark oil for April delivery was up 57 cents to $106.91 at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract fell $1.06 to settle at $106.34 per barrel in New York on Monday. Brent crude was up 60 cents at $125.94 per barrel in London.

A third straight month of strong U.S. jobs growth in February has bolstered investor confidence that the recovery in the world's biggest economy is strengthening and will eventually increase demand for crude.

The Federal Reserve is scheduled to hold a one-day policy meeting later Tuesday, and the oil market will be watching closely for any hint the central bank is considering stimulus measures to boost economic growth.

Analysts are also eyeing the possibility that global crude producers won't be able to boost output enough to match demand if Iran's 4 million barrels a day of production is cut.

"Global spare capacity has been dwindling, and crude demand is about to start rising seasonally," said Citigroup, which expects Brent to average $130 in the third quarter. "Recent developments point to higher oil prices to come and the odds of a spike to new peaks rises."

Crude has jumped from $96 last month amid investor concern that growing tensions over Iran's nuclear program could spark a military conflict that disrupts global crude supplies. Israel has said it may carry out a pre-emptive strike on Iran's nuclear capabilities while Iran has threatened to halt oil tankers in the Persian Gulf's Strait of Hormuz.

"The inflammatory rhetoric between the U.S. and Israel and Iran shows no sign of abating," Citigroup said. Israeli comments that there will be no public debate before a strike promises to keep oil elevated even if the rhetoric calms down, the bank said.

In other energy trading, heating oil rose 1.5 cents to $3.26 per gallon and gasoline futures gained 1.5 cents at $3.34 per gallon. Natural gas slid 0.8 cents at $2.26 per 1,000 cubic feet.

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