SINGAPORE: Brent crude was steady under $119 a barrel on Tuesday as fears over the health of the euro zone economies and political uncertainty countered worries over a production stoppage in the North Sea and potential supply disruptions from Iran.
The euro zone economy remains in dire straits, with Monday’s data showing the region’s business slump deepened at a quicker pace than expected in April – indicating the region will stay in a recession through the second half of the year.
Brent crude eased 9 cents to $118.62 a barrel by 0356 GMT, while U.S. crude was down 18 cents at $102.93.
“The whole macro picture at the moment just doesn’t look good for crude. It’s looking pretty bearish,” said Jim Ritterbusch, president of oil trading consultant Ritterbusch & Associates in Galena, Illinois.
“So far all they (euro zone economies) have been doing is throwing band-aids on their problems. I still see significant risk from the southern European economies -Spain, Portugal Italy to some extent. This is nowhere near over.”
Political turmoil in the Netherlands, where Prime Minister Mark Rutte tendered his government’s resignation in a crisis over budget cuts, added to the sense of concern about Europe, while the prospect of a Socialist president in France triggered worries that Paris might loosen its austerity commitment.
“The main dangers to the situation in Europe have been on display over the past couple of days, and these include political support for populist anti-reform economic agendas and inadequate economic growth against a background of fiscal austerity,” said Ric Spooner, chief market analyst at the Sydney-based brokerage CMC Markets.
“The French election campaign, weak manufacturing PMI’s and Spanish 10-year bonds yields at around 6 percent are all indicators that make it hard for investors to increase risk appetite.”
Oil prices were, however, supported by supply concerns stemming from a production stoppage at the North Sea Buzzard oil field,Britain’s largest, and worries over exports from Iran amid Western sanctions. But analysts caution that rising global inventories are likely to cap oil price gains.
“Even with this (North Sea disruption) and Iran’s barrels coming off the market, there is more than enough oil to meet demand at the moment,” Ritterbusch said.
“Saudi is committed to plugging the gaps left by loss of Iranian supplies, and OPEC as a group is pumping well over its targets.”
OPEC exports by sea, excluding Angola and Ecuador, will rise by 620,000 barrels per day (bpd) in the four weeks to May 5 to 24.49 million bpd, UK consultancy Oil Movements said in a report last week.
In the world’s top oil consumer, the United States, crude stockpiles were expected to have risen last week, a Reuters survey of analysts showed.
Loss of supply from Iran has come as a result of tougher sanctions by the United States and its European allies who claim that the Islamic Republic is producing nuclear weapons. Tehran has long denied the allegations by the West, insisting that their programme is for civilian purposes.
Iran will meet with officials from countries, including the United States, Russia, China and Germany, in Baghdad in May in a bid to resolve the standoff with the West over its nuclear programme.
As a result of sanctions,South Korea’s crude imports from Iran fell 40 percent in March from the same period a year earlier. China also halved its imports last month from a year ago due to disputes over contract terms.
Investors are now eyeing the US Federal Reserve’s two-day policy meeting that begins later in the day to gauge the central bank’s attitude towards further monetary stimulus.
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