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Tue 17 Jan 2012 07:45 AM

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Brent holds steady above $111 on China, supply fears

Demand expectations steady after China posts economic push amid EU debt woes

Brent holds steady above $111 on China, supply fears
Washington imposed additional sanctions on Iran last month

Brent crude futures rose on Tuesday, staying above $111 on
expectations of steady demand growth after the world's second-largest oil
consumer, China, posted an economic expansion that beat forecasts.

The data eased oil investor worries that Europe's debt
crisis is forcing China's factories to pare output and reduce energy
consumption. The latest numbers give another prop to prices that have hovered
around $110 a barrel since the beginning of the year, fuelled by escalating
tension in the Middle East over Iran's nuclear programme.

Brent crude rose 46 cents to $111.81 a barrel by 0306 GMT. US
crude rose $1.26 a barrel to $99.97. There was no settlement price for the US
benchmark because of a holiday in the United States on Monday.

"China's data is encouraging, the numbers have been
good across the board and that is supportive of oil," said Ben Le Brun,
market analyst at OptionsXpress. "It shows that the fallout from the
European crisis has not been as bad as expected."

China's implied oil demand climbed to an all-time high of
9.64 million barrels per day in December, up 0.4 percent from a year earlier
and wound up 2011 with 6.8 percent growth, calculations based on preliminary
government data showed.

The world's top oil exporter, Saudi Arabia, said it can pump
more oil at a moment's notice, a day after Iran warned Gulf oil producers not
to compensate for any disruption of exports due to international sanctions.

Saudi Oil Minister Ali al-Naimi, told CNN in an interview
Riyadh could increase production by about 2 million barrels per day (bpd)
"almost immediately."

The comments further stoked already simmering tension in the
region as Tehran faces growing isolation over its nuclear programme, with the
United States pressuring top consumers from China to Japan to stop buying
Iranian oil.

A bearish target at $108.75 per barrel remains unchanged for
Brent, while US oil will revisit a Jan. 13 low of $97.70 per barrel, as it
could have completed a rebound from this level, Reuters market analyst Wang Tao

Market participants remain worried about global demand
growth as Europe struggles to tackle the region's debt crisis. The worsening of
the region's financial problems may impact other major economies and stifle
energy demand.

US rating agency Standard & Poor's cut its credit rating
of the euro zone's EFSF rescue fund on Monday. The agency said in a statement
the decision was all but inevitable following identical cuts three days earlier
to the creditworthiness of France and Austria, two of the fund's guarantors.

Broader markets have so far shrugged off the move, with
European shares and the euro recovering on Monday and a debt auction by France
drawing firm investor demand.

"Risk markets successfully negotiated their first minor
hurdle for the week when, as generally expected, French note auctions revealed
no immediate impact from the one-notch rating downgrade by S&P," Ric
Spooner, chief market analyst at CMC Markets, said in a report.