Oil edges towards $111

Brent crude edged up towards $111 a barrel today after a four-day decline spurred by worries over a fragile global economy, with supply risks supporting prices as violence in the Middle East intensified.

Brent lost 4 per cent last week and may stretch losses to a second straight month in October amid global economic uncertainty. But growing violence in parts of the Middle East, which supplies a third of the world's oil, has helped counter concerns over weaker fuel demand.

Also supporting oil prices, along with a softer dollar versus the euro, are delays in the restart of both a major Canadian crude oil pipeline to the United States and the North Sea Buzzard oilfield.

Brent crude for December delivery had risen 0.5 per cent to $110.61 per barrel by 7.30am (Irish time), recovering from a session low of $109.47, its weakest since October 4th.

US oil was up 0.4 per cent at $90.47, also bouncing back from an intraday trough of $89.49.

Brent crude's premium to West Texas Intermediate futures, measured between December contracts, narrowed to around $20 from more than $24 last week, the widest in a year.

"We continue to have the same push and pull factors. The demand outlook remains weak, but geopolitics remains the wild card," said Victor Shum, managing director for downstream energy consulting at IHS Purvin and Gertz.

Investors were also buying back oil after prices fell over the past four sessions, said Ken Hasegawa, commodity sales manager with Newedge in Tokyo.

Shum and Hasegawa agreed that weaker demand prospects should weigh on prices over the next two months given that top exporter Saudi Arabia has made good on its pledges to keep the oil market well supplied.

"There's no shortage at the moment. From a fundamental point of view, Brent should soften to around $100," said Hasegawa.

While recent employment and housing data from top oil user the United States have been relatively upbeat, the economy of China is, at best, on a tepid road to recovery, while Europe remains mired in a nagging debt crisis.

The Chinese economy could stage a feeble rebound in the fourth quarter on higher public infrastructure spending, although growth will remain lethargic through 2013, a Reuters poll of economists showed.

Tensions surrounding Syria continued to put oil investors on edge and support prices, with fears that the violence could spread to other nations in the Middle East.

The state funeral in Beirut of an assassinated Lebanese intelligence chief ended in violence yesterday as angry mourners broke away and tried to storm the offices of Prime Minister Najib Mikati, feeding into a growing political crisis in Lebanon linked to the civil war in neighbouring Syria.

The Middle East tensions, along with the possibility that China could apply some stimulus to boost its economy, may help oil prices rebound between now and the end of the year, said Ben Le Brun, market analyst at OptionsXpress in Sydney.

"I think those are going to be factors that largely should support oil prices going into Christmas. I'm looking for a trend up towards $120 for Brent and $100 for WTI," said Le Brun, also citing the positive impact of the ongoing bond-buying programme by the Federal Reserve to boost liquidity.

Reuters