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Fri 7 Dec 2012 11:30 AM

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Oil price steadies at $107 amid global gloom

Worries about euro zone economy, looming fiscal crisis in the US impacts crude price

Oil price steadies at $107 amid global gloom

Brent crude steadied above $107 per barrel on Friday, but prices were headed for their biggest weekly loss in more than a month on worries about the euro zone economy and a looming fiscal crisis in the United States, the world's top oil consumer.

While the European Central Bank painted a gloomy picture for the region in 2013, investors also remained cautious with no immediate resolution in sight to the US "fiscal cliff" of steep budget cuts and tax hikes which come into effect next year and threaten to tip the economy back into recession.

The only bright patch has been China where growth is reviving after seven quarters of slowdown, leading to some optimism about demand from the world's top energy consumer.

"The weaker ECB story will weigh on Brent prices and (ECB President Mario) Draghi's comments will weigh on expectations," said Jonathan Barratt, chief executive officer at Barratt's Bulletin, a Sydney-based research firm.

"The big picture is that Europe is weak, US is undecided and China is strong, so the news flow from these three will be what determines prices," he added.

Front-month Brent futures added 30 cents to $107.33 per barrel by 11.01am UAE time, after dropping for four straight sessions. For the week, Brent was down 3.5 percent, its biggest such loss since the week ended Nov 2.

US crude rose 31 cents to $86.57 per barrel, but was down nearly 3 percent for the week, it first decline in five weeks and the steepest drop since late October.

Economic worries from both sides of the Atlantic have curbed investor appetite for riskier assets in recent months, dragging down the Thomson Reuters-Jefferies CRB index, a bellwether for commodities, about 4 percent so far this quarter.

There was some relief after Greece secured a deal with its international lenders, but concerns about Europe were reignited as ECB's subdued forecasts pointed to a higher likelihood of contraction in the economy in 2013, confirming the assessment the three-year old debt crisis was nowhere close to resolution.

Adding to the jitters was the political impasse on the US fiscal policy.

With little to show after a month of posturing, the White House and Republicans in Congress dropped hints on Thursday that they had resumed low-level private talks on breaking the stalemate but refused to divulge details.

While investors are reasonably confident that a resolution will be reached before the deadline, they are turning risk-averse as the deadline draws closer with no agreement in sight.

A mixed batch of economic data from the world's largest economy is not helping the outlook either, as manufacturing slipped to a three-year low in November, the service sector grew and jobless claims came in lower than expected.

On Friday, investors will focus on key non-farm payrolls (NFP) data for November, which may show a slowdown in job growth in the aftermath of Superstorm Sandy that disrupted economic activity.

"With the FOMC next week, (the NFP) number will likely shape expectations for the post-twist Fed and gauge business sentiment ahead of the fiscal cliff," Citigroup analysts said in a statement.

Federal Reserve policymakers are scheduled to meet December 11-12 to review monetary policy.

Investors were also monitoring developments in the Middle East where a worsening political crisis in Egypt, an escalating civil conflict in Syria and sabre-rattling by Israel has heightened worries about oil supply from the region.

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