Brent futures rise above $112

Brent crude futures rose above $112 today, recouping some of the previous session's fall of more than $2, but gains were capped by concerns Europe could slip into a recession, hurting oil demand growth.

Investors are worried about the ability of politicians in Italy and Greece to push through painful reforms to resolve their debt crises. Those concerns kept the euro at the bottom of its range for the month and pushed Asian shares lower. Oil also got support from a likely fall in US crude stocks.

"Some more selling in oil may be expected in coming days because of concerns about the prospects for growth in Europe," said Victor Shum, managing consultant at Purvin and Gertz. "But we are also entering a strong demand season, which will set a relatively high floor on prices, limiting any pullback."

Brent crude gained 13 cents to $112.02 a barrel by 6.37am, after rising to as much as $112.53. US oil fell 48 cents to $97.66. The benchmark fell yesterday after closing at a 15-week high in the previous session.

"Investors are constantly in a risk-on, risk-off mode because of the uncertainty in Europe," said Natalie Robertson, an analyst at ANZ. "The key thing is to look at Europe. Macroeconomic developments are overshadowing everything else."

The Organisation of Petroleum Exporting Countries will watch market developments closely and will be able to work well together, Iran's Opec governor Mohammad Ali Khatibi said.

Opec, at its last meeting in June, failed to reach consensus on an output deal to contain crude oil prices and scheduled to meet again in early December.

Across other commodities, base metals such as copper also fell due to the uncertainty surrounding the euro zone, while gold, a safe haven asset, also inched lower.

The difference between Brent and the US benchmark has narrowed to around $15 a barrel as the economic uncertainty surrounding the euro zone is having a bigger impact on the European benchmark.

The spread will stay around the current level as rising demand in Asia underpin Brent prices even as output of grades linked to the benchmark such as Libya increase.

Brent's premium to the Middle East marker Dubai fell to its lowest level in nearly five months. The Brent/Dubai Exchange of Futures for Swaps (EFS) for December notionally fell $1.09 from yesterday's close to $3.30 a barrel, brokers and traders said.

Italy's prime minister-designate, Mario Monti, met the leaders of the biggest two parties to discuss the "many sacrifices", while Greece's new technocrat prime minister, Lucas Papademos, told lawmakers reforms were the only way to mitigate painful austerity measures which had deepened the recession.

"Markets are faced with a medium-term outlook full of risk that economic reforms will not survive the political process," said Ric Spooner, chief market analyst at CMC Markets, in a report. "Whilst the new governments led by reform-minded economists are seen as a good starting point for the reform process, implementation will at best take time."

Support also came from expectations that inventories in the world's top oil consumer the United States fell for the second straight time on lower imports and higher refinery runs.

On average, US crude stockpiles were forecast down 1.1 million barrels for the week ended November 11th, a preliminary Reuters poll of analysts showed. In the week to November 4th, crude stocks fell 1.37 million barrels to 338.09 million.

Reuters