Brent crude rose above $112 per barrel on Tuesday after solid German and French growth data but worries over the outlook for euro zone deepened as debt yields rose and austerity measures threatened to tip the bloc into recession.
Fuel consumption closely reflects economic activity and slowing growth in Europe is likely to keep a firm lid on demand for oil in the region over the next year, economists say.
The German economy grew 0.5 percent in July-September and second quarter growth was revised up to 0.3 percent from 0.1. France expanded by 0.4 percent, after contracting 0.1 percent in the previous three months.
But the euro zone debt crisis is likely to make matters worse with countries such as Italy, Greece, Ireland, Portugal and Spain forced to adopt tough austerity measures in order to stop the bond market driving them towards default.
Yields on Italian 10-year bonds climbed above 7 percent, a level considered unsustainable and not far off 14-year highs around 7.5 percent hit last week before Prime Minister Silvio Berlusconi stepped down.
The euro stayed close to the bottom of its range for the month, helping depress stock markets. {MKTS/GLOB]
Brent futures for December rose $1.25 to a high of $113.14 before slipping back to trade around $112.20 by 1310 GMT. The benchmark contract fell $2.27 on Monday after closing at a 15-week high on Friday. December Brent was due to expire later on Tuesday. U.S. crude oil fell 30 cents to $97.84.
"There was a short burst of enthusiasm in the market after indicators from France and Germany, but people are looking at more immediate matters and the short-term outlook, and that is not positive," said Christophe Barret, global head of oil research at French bank Credit Agricole.
The premium for Brent futures over the U.S. crude benchmark narrowed to around $14 after hitting almost a five-month low of $13.80 on Monday, with analysts saying uncertainty over the euro zone was having a bigger impact on the European benchmark than its U.S. counterpart.
Brent's premium to the Middle East marker Dubai also 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 Monday's close to $3.30 a barrel, brokers and traders said.
RECESSION
Crude supply is on the rise in Europe as North Sea production stabilises while Libya ramps up output after the end of the country's civil war.
The higher supply is facing weak demand in Europe as refiners struggle with poor refining margins. By contrast, strong demand for Middle East crude in Asia has underpinned Dubai quotes, traders say.
Comments (0) Leave a comment