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Oil holds below $109 on global economic concern

Published: December 6, 2012 | 7:59 am
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SINGAPORE — Brent crude held below $109 a barrel on Thursday as niggling worries about the global economy and oil demand, following subdued data from the US and Europe, countered supply fears stemming from simmering Middle East tension.

Investors also remained edgy about the US fiscal cliff — the year-end tax hikes and spending cuts that threaten to push the world’s largest economy back into recession and dent demand from the world’s top oil consumer.

But latest comments from US President Barack Obama, that a deal to avert the fiscal cliff was possible in “about a week” if Republicans compromised on taxes, held out some hope, supporting prices of riskier assets like oil and equities.

Brent crude rose 8c to $108.89 a barrel at 6.07am GMT, after dropping for the last three sessions.

US crude shed 15c to $87.73 a barrel, but losses were limited by inventory data showing gasoline stocks rose by the biggest weekly margin in more than 11 years.

“Overall, the markets are weak with the global economic concerns and will be trapped in a range until the US ‘fiscal cliff’ issue is behind us,” said Tony Nunan, an oil risk manager with Mitsubishi Corp in Tokyo.

Concern about the global economy moved back into focus after a mixed batch of numbers failed to reassure investors.

Ahead of key US monthly nonfarm payrolls due on Friday, private payrolls processor ADP reported private-sector employers added 118,000 jobs in November, fewer than expected as superstorm Sandy took a toll on hiring, though activity in the service sector continued to expand.

Across the Atlantic, data showed euro zone shoppers cut back on spending by the biggest margin in six months in October.

Although business surveys showed that the region’s downturn eased slightly in November, there are few signs it could emerge from recession any time soon.

Markets are now eyeing a European Central Bank policy meeting later in the day for clues on future policy path.

“The tone is bearish, but markets are supported by a slew of geopolitical issues and the biggest one is Iran,” Mr Nunan said, referring to the West’s standoff with Iran over its disputed nuclear programme, a 20-month conflict in Syria, political unrest in Egypt and tension in Israel.

“Iran will be the next issue that Obama will have to address after the fiscal cliff, so though it’s on the back burner now, I expect it to come to the forefront early next year,” he said.

Iran said it had obtained data from a US intelligence drone that showed it was spying on the country’s military sites and oil terminals. Washington said there was no evidence to support the assertion.

Israel is also in focus as it moved ahead with plans to build settler homes in one of the most sensitive areas of the West Bank, triggering protests from the European Union.

US concern about “desperate” Syrian President Bashar al-Assad using chemical weapons against rebels and a political rebellion against Egyptian President Mohamed Mursi added to fear that supplies from the region will be disrupted.

“With elevated geopolitical tensions and the root cause of most supply outages unresolved, risks abound for the global balance,” Morgan Stanley analysts said in a note.


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