LONDON: Oil dipped below $111 per barrel on Thursday, as concerns over supply eased after a ceasefire took effect in the Gaza Strip, but uncertainty over its success and a recovery in Chinese manufacturing offered support.
Israel and the Islamist Hamas movement agreed to an Egyptian-sponsored ceasefire late on Wednesday to halt the eight-day conflict around Gaza, limiting oil price gains.
Although Israel is not an oil exporter, concern that oil-producing nations in the Gulf could become involved in the conflict around Gaza has led to fears of supply disruption.
"I think it will last - Brent should fall on that - but it seems as the market is pretty sceptical," said Thorbj?rn Bak Jensen, an analyst at A/S Global Risk Management.
Brent crude futures slipped 30 cents to $110.56 a barrel by 1224 GMT, after earlier rising to a high of $111.17. US crude was up 3 cents at $87.41 a barrel.
China's manufacturing sector saw expansion accelerate in November for the first time in 13 months, according to a factory survey.
But analysts expected the pace of recovery to be modest in the fourth quarter.
"I'm surprised Brent is so high ... there are a lot of predictions that all the weakness in China will eventually get sorted as the new leadership takes over, but it seems like they're not in a huge hurry to over-stimulate," said Tony Nunan, a risk manager at Mitsubishi Corp.
ECONOMIC OUTLOOK
The outlook for Europe in contrast was far bleaker, with business surveys showing on Thursday the euro zone economy is on course for the worst quarter since the dark days of early 2009.
But balancing out the bad news , the United States, the world's top oil consumer, reported positive economic data on Wednesday.
Manufacturing grew in November at its quickest pace in five months, with a rise in domestic demand hinting that factories could provide a boost to growth in the fourth quarter.
"Yes, there is bad data out of Europe, ... but Europe is basically priced in.
The market is increasingly opimistic just looking at how equitity is performing, good news out of China, it's all very constructive," said Seth Kleinman, global head of energy strategy at Citi.
US stock markets were closed for the Thanksgiving holiday on Thursday, temporarily deflecting attention from US discussions on the US "fiscal cliff" - $600 billion worth of tax increases and spending cuts set to begin in 2013.
Investors fear the measures could derail the US economic recovery, and the focus is likely to return to the talks after the holidays.
Also supporting prices, US crude oil inventories fell unexpectedly on Wednesday, according to a government report, dropping by 1.47 million barrels in the week to Nov. 16, against analyst forecasts of a 900,000 barrel build.
Tight markets for diesel and other refined products are also to keep crude oil prices supported.
"We're going into winter and with distillates as tight as they are, it's just going to limit any material downside," Kleinman said.
Comments
Comments are closed.