Oil price slips to $110 amid bleak Euro outlook

Ceasefire in Gaza eases supply concerns but Europe fears raises global demand concerns

Brent crude slipped towards $110 a barrel on Friday as weak data from Europe raised concerns about global demand and a ceasefire in the Gaza Strip eased supply concerns, offsetting positive manufacturing data from China.

The outlook for Europe was bleak with business surveys showing on Thursday the euro zone economy was on course for the worst quarter since early 2009, potentially reducing oil demand.

Brent crude slipped 25 cents to $110.30 a barrel by 10.41am UAE time, on track for its second weekly gain in three. US crude fell 19 cents against Wednesday's settlement to $87.19 and was on track for its third consecutive weekly gain.

The U.S. market, which was closed on Thursday for the Thanksgiving holiday, will not issue a formal settlement until Friday.

"I think what we're seeing in oil markets at the moment is a re-pricing after the ceasefire in the Gaza Strip," said Ben Le Brun, a market analyst at OptionsXpress.

"Traders are obviously having one eye on the US fiscal cliff and on Europe with the Greek and Spanish bailouts having a few question marks ... but I'm still a bit surprised we haven't seen as much support in the oil markets as we would have historically expected."

Worries about oil supply eased after Israel began withdrawing the army on Thursday that had been poised to invade the Gaza Strip to go after Hamas, with both sides declaring they had won their eight-day battle.

"Concerns over potential supply disruptions have eased after a ceasefire took effect in Gaza - but markets will certainly keep an eye on headlines from the region with some market participants describing the truce as 'shaky'," analysts from ANZ bank wrote in a note on Friday.

Despite positive manufacturing data this week out of the United States and China, the world's top two oil consumers, investors are concerned the European economy could keep oil demand concerns elevated.

Europe looks set to remain a major drag on the world economy next year as it re-entered recession in the third quarter, and this quarter seems unlikely to bring any respite.

While factory data in the euro zone surpassed expectations, there was a worrying decline in its services sector, comprising the banks, hotels and restaurants that make up most of its economy.

PMI compiler Markit said the surveys were consistent with the euro zone economy shrinking 0.5 percent this quarter, which would be the worst reading since the first quarter of 2009, when the economy hit its lowest ebb during the financial crisis.

Also affecting investor sentiment were the dimming prospects of a deal on the European Union's long-term budget on Friday after a fresh compromise proposal offered concessions to France and Poland but ignored British and German demands for deeper overall spending cuts.

Next week, investors' focus will likely return to talks on the US "fiscal cliff" - $600 billion worth of tax increases and spending cuts set to begin in 2013 unless an agreement is reached on the budget deficit.

Investors fear the measures could derail the US economic recovery, and in turn oil demand.

"Conventional wisdom says if both sides of parliament can come to an agreement and the US doesn't fail over the fiscal cliff then that should be supportive of oil prices," said Le Brun.

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