SINGAPORE: Brent crude slipped below $124 on Monday due to demand growth concerns, but the slide was stemmed by fears of a supply crunch as Iran exports less crude on tighter Western sanctions.
China cut its 2012 growth target to an eight-year low of 7.5 percent, lowering its long-standing annual goal of eight percent, causing a fall in Asian shares and raising questions over oil demand.
But as sanctions against Iran, the world's fifth largest oil exporter, over its nuclear programme make oil trade more difficult, its biggest customers including China, Japan and India are reducing imports from Tehran, supporting prices.
Front-month Brent fell 15 cents to $123.49 a barrel by 0816 GMT. Brent fell 2 percent on Friday after Saudi Arabia denied a media report of an explosion at a Saudi oil pipeline that had helped Brent crude prices shoot up $5 to $126.20, their highest level since 2008.
US April crude on Monday rose two cents to $106.71 a barrel after settling $2.14 lower at $106.70.
Tetsu Emori, a fund manager with Astramax Co. in Tokyo said tensions over Iran could cause a potential supply crunch.
"There's no other alternative to Iranian oil except for Saudi oil and they have already increased exports last month," he said, adding that global oil consumption is increasing on the back of growing demand in Asia.
India's Mangalore Refinery and Petrochemicals Ltd (MRPL)plans to cut its yearly Iranian oil import deal by as much as 44 percent to 80,000 barrels per day in 2012/2013.
Saudi Arabia's current spare capacity is 2.5 million bpd while production is now at 9.8 million bpd, the country's deputy oil minister Abdul Aziz Bin Salman bin Abdulaziz said last week, adding that his country's main concern was to keep the global oil market well supplied.
In a possible response to additional demand, Saudi Arabia has raised the price of its flagship Arab Light crude oil for customers in Asia, who buy more than half of its crude exports, by $1.25 a barrel for April.
A delay of up to four more days in restarting Enbridge Inc's oil pipeline system in the US Midwest also provided support.
MIXED DATA
For the week ahead, CPI data out of China and US jobs data, both due on Friday, are focal points for the market.
"Investors will get their direction from data expected out of the US and China, and there needs to be some form of confirmation that an economic recovery is taking place," said Ben Le Brun, a Sydney-based markets analyst at OptionsXpress.
The latest data out of China showed that its services sector ran at its fastest pace in four months in February -- contrary to an official report on Saturday that signalled that the sector was shrinking.
The private-sector HSBC China Services PMI, which provides a snapshot of conditions in businesses from restaurants to banks, climbed to a seasonally adjusted 53.9 in February from 52.5 in January, well above the 50 mark that demarcates expansion and contraction.
It was, however, well below its long-term trend despite an uptick in new business growth to an eight-month high.
In India, the country's services sector lost momentum in February and firms shed workers for the first time in three months despite growing more confident about the year ahead, HSBC's Business Activity Index showed on Monday.
The employment sub-index slipped below the 50-mark separating growth from contraction for the first time since November, reflecting similar trends in the factory sector during the month, showing that economic weakness has spread from the factory sector to the services sector.
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