Oil above $56 on U.S. stimulus hopes ahead of Biden inauguration

Oil rose above $56 a barrel on Wednesday, supported by expectations that the new U.S. administration will deliver massive stimulus spending that would lift demand, as well as by OPEC curbs and forecasts for a drop in U.S. crude inventories.

U.S. Treasury Secretary nominee Janet Yellen on Tuesday urged lawmakers to "act big" on pandemic relief spending. A fall in the dollar after the comments helped oil to rally, analysts said.

"This provided a good backdrop for oil and other risk assets," said Stephen Brennock of broker PVM. "While the near-term demand environment continues to be gripped by weakness and uncertainty, the future is brightening."

Brent crude was up 61 cents, or 1.1%, at $56.51 a barrel at 1435 GMT, having gained 2.1% on Tuesday. U.S. West Texas Intermediate (WTI) crude climbed 66 cents, or 1.3%, to $53.64.

President-elect Joe Biden's inauguration is on Wednesday.

"Increased fiscal support means more growth and higher U.S. oil demand," said Eugen Weinberg of Commerzbank. "What is more, the oil market is likely to remain in supply deficit both in the first quarter and in the year as a whole."

A record output cut by OPEC and its allies, a group known as OPEC+, last year helped to lift prices from historic lows.

This month Brent hit an 11-month high of $57.42, helped by Saudi Arabia pledging to make additional, voluntarily cuts and most OPEC+ members agreeing to keep output steady in February.

Oil drew more support from expectations of lower U.S. crude inventories. Analysts estimate crude stocks fell by 300,000 barrels in the week to Jan. 15. The first of the week's two supply reports is due on Wednesday from the American Petroleum Institute.

Gains were limited by concern about near-term demand as COVID-19 infections rise.

China's capital, Beijing, on Wednesday announced stricter COVID-19 control measures. Germany on Tuesday extended a lockdown for most shops and schools. (Additional reporting by Sonali Paul in Melbourne and Shu Zhang in Singapore Editing by Jason Neely and David Goodman )

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