nmsssssLONDON: Oil prices rose on Monday as the dollar weakened despite an initial flight-to-safety after the death of North Korean leader Kim Jong-il, while protests in a region of oil producer Kazakhstan raised the spectre of further supply disruption.

Ongoing concerns that the euro zone debt crisis will weigh on demand kept a lid on prices, however.

Brent crude futures were $1.00 up to $104.35 a barrel by 1434 GMT. Last week the front-month contract fell by 4.85 percent, its biggest percentage drop since the week to Nov. 18. US crude futures rose 82 cents to $94.35 a barrel. The benchmark lost 5.9 percent in the previous week.

"There was some overnight pressure in tandem with the Asian stocks down on the death of Kim Jong-il, but I am not sure that the oil markets will maintain much of a North Korea risk," Petromatrix's Olivier Jakob said.

A reversal in the dollar index, which fell after initially surging on the back of a flight-to-safety following Kim's death, lent support to prices.

A stronger greenback makes dollar-denominated assets such as oil more expensive when purchased in other currencies.

The possibility of further supply disruptions this year with the Kazakh protests and amid a power-vacuum in Iraq also spurred gains, analysts said.

Commerzbank analysts noted Kazakhstan is a major oil producer, with over 1.6 million barrels per day - "exactly the same amount as Libya's pre-war production."

"The Mangistau region where Zhanaozen is situated is responsible for approximately one quarter of the country's total oil output," they wrote in a note.

Across Europe, sentiment softened after Fitch Ratings warned on Friday it might downgrade France and six other euro zone countries, saying a comprehensive solution to the region's debt crisis was beyond reach.

China should be able to steer its economy into a moderate slowdown, after housing inflation data hit its lowest level this year in November, the latest sign that Beijing's efforts to fight rising prices are paying off as it eases monetary policy.

China's top refiner Sinopec will in January buy less than half the crude it typically imports from Iran, trade sources said on Monday, as the two haggle over terms against a backdrop of rising international pressure on Tehran.

China, the world's top energy consumer, is also the largest buyer of Iranian crude. In a rare admission, Iran acknowledged its oil output had dropped due to lack of investment in its oilfields.

Market participants will be watching events in Iran this week on the possibility that sanctions over Tehran's nuclear programme will choke off supplies from one of the world's largest crude oil exporters.

Indian companies have begun talks with alternative suppliers to slowly replace Iranian oil, and South Korea has set new sanctions on Tehran, banning fresh investment in its oil and gas sectors and blacklisting additional Iranian firms and personnel.

The threat of a major supply disruption from OPEC's second-biggest producer has helped support oil prices in recent weeks.

Copyright Reuters, 2011

Comments

Comments are closed.