SINGAPORE: Brent futures held steady above $114 on Wednesday on hopes of a revival in oil demand growth as a European Union member was spared a ratings downgrade, while simmering tension in the Middle East provided additional support.
Asian shares, the euro, base metals and gold all rose after Moody's Investors Service affirmed its investment grade rating on Spain, helping ease investor worries that the crisis in the region is worsening. Oil was also supported by supply concerns, as the European Union slapped fresh sanctions on Iran.
Brent gained 10 cents to $114.08 a barrel by 0701 GMT. The November contract, which expired on Tuesday, went off the board 73 cents lower at $115.07, while the December one settled 40 cents lower at $114.00. US oil gained 21 cents to $92.31.
"We are seeing prices react to the investment grade news for Spain, but the demand outlook continues to look weak because of the global economic condition," said Victor Shum, managing director at IHS Purvin and Gertz in Singapore. "Prices are drawing support from supply
concerns in the Middle East."
The Moody's decision helped assuage widespread fears of the debt crisis in the zone worsening and removed the most immediate threat to the country of a downgrade to a junk rating.
"The cards have fallen back in favour of risk assets," Tim Waterer, senior trader at CMC Markets said in a report. "In particular, a dose of good news on the Spanish front was quickly latched onto by investors who are increasingly growing tired of playing the waiting game on a potential bailout request."
Oil will trade in a tight range in the short term unless the geopolitical situation worsens significantly, and prices are likely to slide by the end of the year due to ample supplies in a market suffering from weak demand, Shum said. Brent may slip to around $100 a barrel by the end of the year and US oil to $85, he said.
European Union governments imposed sanctions against major Iranian state companies in the oil and gas industry and strengthened restrictions on the central bank.
The United States and the European Union are putting pressure on Iran to stop its disputed nuclear programme, while Tehran says it needs the technology to generate electricity.
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