Brent crude steady near $110 on MidEast violence, demand worry

Brent crude was steady near US$110 per barrel on Wednesday after an early rise spurred by fears of supply disruption from the Middle East as clashes raged between Palestinians and Israelis, despite overnight truce talks.

But prices fell back as worries over oil demand reasserted themselves after US Federal Reserve Chairman Ben Bernanke warned that a failure to resolve a budget crisis could lead to recession in the world's biggest consumer of crude.

Fresh concerns about Europe's economy also weighed on oil prices as Euro zone finance ministers ended a meeting in Brussels on Wednesday without agreement on the next tranche of loans to Greece.

Brent crude futures were up 16 cents at US$109.99 a barrel by 0451 GMT, off an earlier session-high of US$110.55. US crude remained unchanged at US$86.75.

"There are opposing forces where the uncertainty in Europe and the United States meets with the bullish uncertainty in the Middle East ... so I think we're going to see a volatile market," said Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong.

"We're going to see some crazy volatility in the market with rising geopolitics and rising economic uncertainty. The Middle East tensions could continue to give prices some life in the near term but we suspect that the bearish economic factors will be dominant."

Adding to geopolitical risks, the United States on Tuesday blocked a UN Security Council statement condemning the escalating conflict between Israel and the Palestinians in the Gaza Strip, setting the scene for a possible showdown between Washington and Russia on the issue.

Israeli air strikes shook the Gaza Strip and Palestinian rockets struck across the border as US Secretary of State Hillary Clinton held talks in Jerusalem in the early hours of Wednesday, seeking a truce that can hold back Israel's ground troops.

Hamas, the Islamist movement controlling Gaza, and Egypt, whose new Islamist government is trying to broker a truce, had floated hopes for a ceasefire by late Tuesday; but by the time Clinton met Israeli Prime Minister Benjamin Netanyahu it was clear there would be more argument, and more violence, first.

The violence in the Middle East adds to investors' worries about the economic outlook for the United States and Europe.

Greece's international lenders failed for the second week running to agree how to get the country's debt down to a sustainable level and will have a third go at resolving their most intractable problem in six days' time.

After discussing myriad options in nearly 12 hours of talks through the night, euro zone finance ministers, the International Monetary Fund and the European Central Bank failed to reach a consensus needed to disburse emergency aid to Athens.

That comes a day after Moody's stripped France of its prized triple-A badge, citing uncertainty about the fiscal and economic outlook of the euro zone's second-largest economy.

US Fed chief Bernanke said 2013 could be a "very good year" for the US economy if politicians can strike a quick deal to avoid the so-called fiscal cliff of spending cuts and tax hikes.

Recent US housing and oil inventory data, however, helped support prices.

US housing starts rose to their highest rate in more than four years in October, suggesting the housing market recovery was gaining steam.

US crude oil inventory tumbled last week due to a drop in imports, data from the American Petroleum Institute released on Tuesday showed. Total US crude stocks fell by more than 1.9m barrels in the week to November 16, after analysts polled by Reuters had forecast a build of 900,000 barrels.

The market will now await data from the US Energy Information Administration (EIA) due at 1530 GMT on Wednesday, for confirmation of the API report.