Brent falls below $112 on Italy fears

Europe's debt crisis fears overshadow resilient oil demand from China.

Brent crude dipped below $112 a barrel on Thursday,after sharp falls a day earlier,as growing concerns over Europe’s debt crisis overshadowed signs of resilient oil demand from China.

Brent crude fell 51 cents a barrel to $111.80 by 0714 GMT,after settling down $2.69 on Wednesday at $112.31,its first fall in five sessions. US crude traded 39 cents lower at $95.35 a barrel.

Italian 10-year bond yields shot up well above 7 per cent,a level widely deemed unsustainable,triggering sharp falls in Asian shares and lifting the dollar against the euro as investors trimmed holdings in risky assets.

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We’ve moved from a low-growth scenario to one where there is a real threat of recession in the euro zone,and that’s weighing on oil markets,said Ric Spooner,chief market analyst at CMC Markets in Sydney. Investors are taking risk off the table.

There is now a 60 per cent chance of a euro zone recession,according to the consensus of 250 economists,up sharply from 40 percent in a Reuters poll conducted in October.

According to technical charts,Brent will fall to $109 per barrel,while U.S. oil could have peaked at the previous trading session’s high of $97.84 per barrel,said market analyst Wang Tao.

SIGNS OF SUPPORT

Chinese trade data showed resilient domestic demand,helping lift sentiment. The world’s second biggest oil consumer imported 20.80 million tonnes of crude in October,up 1.7 per cent from September.

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China’s trade surplus was $17 billion in October,smaller than expected,as exports grew 15.9 percent from a year earlier while imports jumped 28.7 percent.

Import growth is a bit higher than we expected,showing that domestic demand is still resilient and may suggest that the economy would only slow down in a gradual way,but with no risk of a sharp slowdown,said Wang Hu,an analyst with Guotai Junan Securities in Shanghai.

Further support came from a fall in crude stocks in the United States. Inventories fell 1.4 million barrels last week,on lower imports,according to the Energy Information Administration. Analysts polled by Reuters had projected a 400,000 barrel build on average.

Distillate stocks,which include heating oil and diesel fuel,plunged more than 6 million barrels,while gasoline stocks unexpectedly fell 2.1 million barrels.

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The EIA data surprised on the upside through a combination of either providing greater than expected draws or reversing expected or previously reported builds,said analysts at BNP Paribas in a research note.

IRAN RISK

The market continued to weigh the risk of a supply disruption from Iran,as Western leaders called for expanded sanctions against the OPEC member over a U.N. watchdog report that it has worked to design atom bombs.

However,analysts said the report’s findings were not alarming enough to warrant a military strike on Iran.

This report will lead to new US and Western sanctions,but the findings do not increase the chance of Israeli military strikes against Iran’s nuclear facilities,said Cliff Kupchan, director of the Middle East Eurasia Group,in a report.