Market to stay volatile as investors caught between possible supply woes, weak EU demand
Brent crude edged up above $113 on Tuesday, spurred by tensions over Iran's nuclear programme and unrest in Nigeria, but persistent worries about the strength of Europe's economies capped gains.
Iran confirmed on Monday it had started uranium enrichment at the Fordow bunker near the city of Qom, which the US state department called a 'further escalation' of violations of UN resolutions.
The tensions over Iran's disputed nuclear programme, which Tehran insists is for peaceful purposes, have included Iran threatening to shut the Strait of Hormuz, a critical shipping chokepoint for oil.
News that the UAE would delay the launch of a crucial oil pipeline that bypasses Hormuz to mid-2012 also fuelled concerns about oil supply from the Gulf.
Brent February crude rose 0.5 percent to $113.01 a barrel by 0556 GMT. US February crude rose 62 cents to $101.92 a barrel.
"Despite demand conditions being relatively weak, oil prices are still above $100 because of the geopolitical tensions. There is a floor on prices at the moment," said Natalie Robertson of ANZ.
She said the European Union's meeting on Jan. 23 on whether to embargo Iran's oil will have a significant impact on price direction as the EU is collectively one of the largest buyers of Iranian crude, rivalling China.
The bloc buys about 500,000 barrels per day (bpd) of Iran's 2.6 million barrels per day (bpd) in exports. Iran in total produces around 3.5 million bpd and is the second-largest producer of oil after Saudi Arabia.
Analysts said the market will remain volatile as investors are torn between possible supply disruptions and weak European demand.
Some analysts were also expecting US commercial crude oil stockpiles to have modestly risen last week by an average of 200,000 barrels as imports continued to rise, a preliminary Reuters poll showed.
Another possible supply issue is a second day of nationwide strikes in Nigeria on Tuesday to protest against the removal of fuel subsidies, but sources said crude output was so far unaffected.
On the demand side, data from Europe and China indicated a slowdown in their economies, putting a damper on prices.
The weakness of Europe's economies was highlighted by German data which showed industrial output fell 0.6 percent in November, slightly more than expected on a drop in intermediate and capital goods.
Warnings by German Chancellor Angela Merkel and French President Nicolas Sarkozy to Greece added to the grim picture.
China's trade data also indicated a slowdown, with exports and imports growing at their slowest pace in more than two years in December. Annual exports grew 13.4 percent in December, while imports growth slowed to a 26-month low of 11.8 percent, way below the 17 percent forecast.
China's December crude oil imports at 5.16 million bpd were down by 6.5 percent from November, but year-on-year, the figures were 6 percent higher.