Debt woes in the euro zone continued to drag down its economie
Brent crude held steady above $119 a barrel on Tuesday as China's manufacturing activities grew, providing a bright spark amid a gloomier economic outlook in the euro zone and the United States that could depress fuel demand.
China's vast factory sector expanded at a slightly higher rate in April from the previous month, a sign that its economy may have bottomed out in the first quarter. The world's second-largest oil consumer is expected to account for nearly half of global incremental oil demand this year, according to the International Energy Agency.
Brent crude for June fell 17 cents to $119.30 a barrel by 0214 GMT. The front-month contract was down nearly 3 percent in April, its first loss in four months.
U.S. crude for June edged down 8 cents to $104.79 a barrel, after posting its first fall in seven sessions on Monday.
"China is still in an expansionary phase and we saw a slight tick-up on the month," said Ben Le Brun, a Sydney-based market analyst at OptionXpress. "That will offset that negativity we saw filtered through from Europe last night."
"We may see a bit of a delayed reaction as prices are not moving much in the Asian session."
On the negative side, debt woes in the euro zone continued to drag down its economies while growth in the United States, the world's largest economy, sputtered.
Spain, the fourth-largest economy in the euro zone, sank into a recession in the first quarter, its second in just over two years. Economists said spending cuts aimed at meeting strict EU deficit limits, together with a reeling bank sector, would delay any return to growth until late this year or beyond.
The U.S. economy appeared to down shift as it entered the second quarter, with consumers increasing their spending only modestly last month and a gauge of business activity in the Midwest falling sharply in April.
"We are forecasting a slowing in momentum in the U.S. manufacturing sector, but we believe this will be a consolidation rather than a sharp loss in momentum as was seen in 2011," ANZ analysts led by Mark Pervan said in a note.
Yet analysts' expectations for a sixth weekly rise in U.S. crude inventories and higher OPEC output in April could also weigh on prices.
OPEC's April output is at its highest since 2008 as extra crude from Iraq and Saudi Arabia has helped cover for tighter sanctions on Iran, whose own oil output has hit its lowest in two decades, a Reuters survey found.
"Unless OPEC curtails production - which we see as unlikely in today's elevated price environment - inventories should build above-normal through third quarter," Morgan Stanley analysts led by Hussein Allidina said in a note.
"A diplomatic solution to Iran's nuclear ambitions or a coordinated SPR (strategic petroleum reserves) release, both of which are increasingly possible, may also present additional downside."
In the United States, crude inventories likely rose for the sixth time in a row last week, due in part to rising domestic production, a preliminary Reuters poll of analysts showed.
U.S. gasoline prices are also under pressure as concerns about a supply shortfall eased after Delta Air Lines Inc announced that it will buy a Pennsylvania oil refinery from ConocoPhillips for $150m.