SINGAPORE: Brent crude slipped below $109 on Tuesday, declining for a second day on worries about demand growth in a well-supplied market, as the United States and the European Union grapple with their financial woes.
Caution over a US fiscal policy standoff and uncertainty over the euro zone's debt problems weighed on Asian shares, the euro and base metals. Yet further losses in oil were capped by geopolitical worries in the Middle East, with Iran launching a massive military drill across half the country.
Front-month Brent slipped 51 cents to $108.56 a barrel by 0522 GMT, after settling below its 100-day moving average of $109.19. US crude declined 49 cents to $85.08, after ending 50 cents lower.
"There is plenty of oil and the market is well supplied, but the economic outlook both in the United States and Europe is weak and that's putting downward pressure on prices," said Ken Hasegawa, a commodity sales manager at Newedge Japan. "But the market is supported because of fears over the Middle East."
The lack of any major news event for the day, concerns over demand and Middle East supply worries will keep oil trading in a tight range of $3 a barrel for the next 24 hours, with Brent seen swinging between $110.50 and $107.50, Hasegawa said. The US contract will trade around $86.50 and $84 a barrel.
US lawmakers return to Washington on Tuesday with a seven-week deadline to reach agreement on scheduled tax hikes and budget cuts that threaten to trigger another recession.
Both Democrats and Republicans generally agree on the need to avoid the jolt of $600 billion in deficit-reduction measures agreed in August 2011. But the main disagreement focuses on whether to extend tax cuts for everyone, as Republicans want, or just for those earning below $250,000 a year, as the president wants.
Across in Europe, global lenders held back from giving further aid to debt-stricken Greece, but gave the country two more years to make the cuts demanded of it.
"Ongoing concerns over the US fiscal cliff and whether Greece would receive a bailout weighed on market risk sentiment," ANZ analysts said in a report. "Overall, market sentiment appears to be bearish."
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