Market eyeing Iran nuclear dispute, fears of supply disruption aids prices
Brent crude edged lower on Tuesday as concerns over Italy's
sovereign debt renewed fears of a sharp slowdown in the eurozone,
overshadowing a potential supply disruption from Iran and seasonally strong
demand for fuel.
Brent crude lost 21 cents a barrel to $114.35 by 0513 GMT.
It settled $2.59 higher on Monday at $114.56, its highest in more than 7 weeks.
U.S. crude traded 1 cent lower at $95.51 a barrel, after rising to as high as
Italy overtook Greece as the prime threat to the stability
of the eurozone after surging bond yields threatened to stifle the debt-ridden
country's fund raising ability. Borrowing costs for the euro zone's third
largest economy rose to their highest since 1997, widely seen as unsustainable
for its debt.
"The news on Italy is affecting sentiment, but prices
will be supported by seasonally strong demand due to the cold winters in China
and Europe," said Ken Hasegawa, commodity derivatives manager at Newedge
Brokerage in Tokyo.
The focus on Italy comes just as the eurozone crisis looked
set to stabilise, with Greece working to put in place a new government and push
through a bailout agreement.
"While the prospect of a unity government is a positive
for Greece, the market has become focused on the potentially much larger
problem of Italian debt markets, now that yields have reached new highs,"
JP Morgan said in a research note.
Europe's debt woes pressured the euro , while spot gold was
steady, after rising 2 percent in the previous session on safe-haven demand.
The crisis also capped gains in base metals and Asian shares.
Brent oil is expected to fall to $113.08 per barrel, while
U.S. oil will retrace to $93.46, according to Reuters market analyst Wang Tao.
However, losses will be limited by strong demand for fuel in
China and the potential for exports from Iran to be disrupted, analysts said.
"Iran is the wild card. If there are sanctions on exports,
that will change the situation dramatically," said Hasegawa.
Iran's dispute with the West intensified ahead of a report
from the UN's International Atomic Energy Agency that is expected to show
Iran's nuclear program is being geared toward making weapons.
On the demand side, China's top refineries plan to raise
their crude oil throughput in November to the highest level in a year, as state
oil firms rev up operations amid domestic diesel shortages and the restart of a
key plant after maintenance.
Oil prices will also be supported by a slower ramp up in
exports from Libya, and continued unrest in oil producers Syria and Nigeria.
"Libyan oil production has recovered a little faster
than expected and is currently above 500,000 barrels per day. But more
production does not equate necessarily with sustained higher exports that would
depress Brent prices -- exports, to date, have been at best sporadic,"
said BNP Paribas in a report.
In Libya, troops and militiamen loyal to President Bashar
al-Assad moved into a residential district of Homs overnight on Monday after
six days of tank bombardment that killed scores of people in the hotbed of
unrest, residents and activists said.
U.S. crude oil inventories rose for a third straight week
due to higher imports, a preliminary Reuters poll of analysts showed on Monday.
On average, crude stockpiles were forecast up 300,000
million barrels for the week ended Nov. 4, the poll of six analysts showed.