Worries over Greece's finances makes oil pare some of the previous session's gains
Brent crude slipped below $113 on Wednesday as Europe's debt crisis and expectations of a rise in oil inventories in the United States for the third straight week overshadowed concerns of supply disruption from Iran and Nigeria.
Worries over Greece's finances, which is racing to conclude a deal and secure continued funding without which it will default in March, made oil pare some of the previous session's gains made on optimism about US economic growth. Base metals also fell, while gold held steady just below a key resistance.
Brent slipped 33 cents to $112.95 a barrel by 0559 GMT, after settling 83 cents higher in the previous session. US crude fell 45 cents to $101.79 a barrel.
"People are focusing on the greater economy as there are no headlines on Iran this morning," said Tony Nunan, a risk manager at Mitsubishi Corp. "But the greater economy, especially the euro zone, is weak."
While Greece races to secure funds, Fitch Ratings could downgrade by one or two notches countries under review such as Italy or Spain, even though it doesn't expect to cut France's triple-A credit rating this year, the agency's EMEA ratings head said on Tuesday.
Higher crude inventories in the United States and a stronger dollar, up about 0.3 percent against a basket of currencies , could have also pressured oil prices.
US crude stockpiles were up 397,000 barrels in the week to Jan. 6, according to data from the industry group the American Petroleum Institute. A clearer picture on inventories will emerge with numbers from the US Energy Information Agency later in the day.
A Reuters poll of 10 analysts forecast an 800,000-barrel rise in domestic oil inventories, with all but two analysts expecting a build in stocks.
Brent is neutral in a range of $111.80-$114.64 per barrel, but is biased to fall, while US oil will fall to $101.16 per barrel, according to Reuters technical analyst Wang Tao. .
Growing tensions over Iran's nuclear programme are putting a floor under prices, but volatility is to expected to stay as investors constantly weigh supply threats against weaker demand.
"I think the geopolitical risk factors will keep the market supported. Prices are falling but I don't think this is going to be a long-term downtrend," said Nunan. "We still have the Jan. 23 meeting coming up and the Nigerian unrest."
The European Union (EU) is meeting on Jan. 23 to decide on an oil embargo on Iran as it refuses to abandon its nuclear program.
US Secretary of State Hillary Clinton said on Tuesday Iran's decision to enrich uranium near the city of Qom was "especially troubling" and urged Tehran to return to serious talks with Western powers over its atomic program.
Nunan expects the uncertainty to keep US oil supported above $95 with Brent being about $10 a barrel higher.
As sanctions squeeze, Iran has threatened to shut the Strait of Hormuz, the outlet for 40 percent of the world's traded oil. Asian buyers of Iranian crude are looking for alternatives.
China's Premier Wen Jiabao will visit three key Middle Eastern oil and gas suppliers - Saudi Arabia, the United Arab Emirates and Qatar - from the weekend.
Japan had asked Saudi Arabia and the United Arab Emirates (UAE) to supply it with more oil, Japanese Foreign Minister Koichiro Gemba said on Tuesday.
Over in Nigeria, what started out as nationwide protests against the scrapping of a fuel subsidy that has nearly doubled petrol prices, has escalated into religious conflicts where a mob killed five people in a mosque in Benin City in the south while Islamist militants shot dead eight people in a bar in the north.