Oil to be driven by news on EU's fiscal state; support seen from supply uncertainties in Mideast
Brent crude was little changed above $107 on Tuesday, after falling in the previous session, on concerns of demand growth as investors worried that last week's pact by European leaders may not be enough to limit the region's debt crisis.
The worries echoed across financial markets. Asian stocks sank, the euro languished near a two-month low, gold plunged to a seven-week low and copper fell after posting its biggest decline in three weeks. Oil will be driven by headlines on Europe's fiscal condition and Wednesday's OPEC meet, with support coming from supply uncertainties in the Middle East.
Brent fell 3 cents to $107.23 a barrel by 0630 GMT, after sliding to as low as $107.07 and settling down $1.36. U.S. crude also fell 3 cents to $97.74, after settling $1.64 lower, trading below $100 for a third day.
"Markets probably are thinking the euro zone is taking too long to get its act together," said Tony Nunan, risk manager at Mitsubishi Corp. "But it's also true that you can't force things at any quicker rate because of the sheer number of countries involved in the decision making process."
Friday's optimism over the European summit deal to strengthen budget discipline was overshadowed by its shroud of legal uncertainty and the absence of an unlimited financial backstop for the single currency.
The uncertainty worsened after ratings agency Moody's said it would review ratings of all EU member states in the first quarter of 2012, while rival Fitch said the summit had failed to provide a "comprehensive" solution to the debt crisis.
Markets are now awaiting the outcome of a US Federal Reserve meeting later in the day to get an idea of the outlook of the world's biggest oil consumer.
The Fed's policy-setting Federal Open Market Committee looks set to hold off on easing US monetary policy for a second meeting as it gauges the impact of Europe's crisis on the economy. The United States has had a series of positive numbers, raising hopes of a steady economic recovery in the country that will help boost oil demand.
"Growth in the United States could help pull the euro zone out of the crisis," Nunan said. "But there is an equal risk of things going the other way, the EU pulling down the US"
Oil investors are awaiting the outcome of a meeting of producer group OPEC. The group on Monday targeted a new 30-million barrel-a-day production deal aimed at healing the rift left by a bad-tempered failure to reach an output agreement when it last met in June.
At stake for the Organisation of the Petroleum Exporting Countries when it meets on Wednesday is a credible policy going into a year when a sluggish global economy could undermine fuel demand and send oil prices tumbling from over $107 a barrel now.
"The members will aim for a proper meeting, a unanimous agreement this time after talks broke down in the last meeting," Nunan said.
Without a collective supply target, OPEC members with spare capacity - Saudi Arabia and its Gulf Arab allies - remain free to pump at will.
Saudi oil minister Ali Al Naimi confirmed on Monday that the kingdom pumped 10.047 million barrels per day in November. The minister was speaking to reporters on his arrival for Wednesday's OPEC meeting.
Unrest in the Middle East is helping put a floor under prices as participants worry about supply disruptions.