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Brent dips towards $112 ahead of US jobs data

Singapore, October 5, 2012

Brent futures slipped towards $112 per barrel on Friday, but were on course to end a choppy week nearly flat as rising tensions in the Middle East battle with perennial worries about the global economy and oil demand.

Strains in the Middle East escalated this week after Turkey stepped up its strikes against Syria and won parliamentary approval for further military action, pushing Brent prices up 4 percent on Thursday.

That ended a three-day slide for the crude benchmark triggered by a spate of weak data that reinforced concerns the fragile global economic recovery was still under threat with a turnaround in China expected to be delayed and the euro zone almost certainly heading into recession.

Keeping investors on edge is a wait for key U.S. jobs data later on Friday, which may provide further clues on the economic health of the world's biggest oil consumer.

"The softness we're seeing could be a combination of profit-booking and nervousness ahead of the non-farm payrolls data," said Ben le Brun, a market analyst with OptionsXpress in Sydney.

"Tensions in the Middle East will keep a floor under prices and the news flow is not improving."

Front-month Brent futures had dropped 36 cents to $112.22 per barrel by 0642 GMT, poised to end the week little changed.

U.S. crude futures eased 39 cents to $91.32 per barrel, after climbing nearly 4 percent in the prior session. U.S. oil was down almost 1 percent for the week, its third-straight weekly fall.

Oil's steep gains on Thursday were also supported by a jump in U.S. gasoline futures after a fire at the largest operating refinery in the country triggered supply worries especially after data showed product inventory shrank last week.

First test

Crude futures dropped between 3-4 percent in a single session mid-week after two purchasing manager surveys showed that a recovery in China, the world's second-biggest oil consumer, may be delayed.

The euro zone's service sector has declined even further and factory activity is at a more than three-year low, potentially pushing the debt-hit region into a recession.

Data from the United States this week suggested a nascent recovery, and investors are seeking further confirmation from the non-farm payrolls data due later in the day.

The United States likely added 113,000 jobs in September, up from 96,000 in August, with the unemployment rate edging up to 8.2 percent, according to a Reuters survey.

The data will be the first test of whether the Federal Reserve's strategy to buy $40 billion in bonds every month from September to boost the labour market has started to bear any fruit.

"A bad non-farm payroll number would only likely have a negative impact on equity and commodities prices," said Jason Schenker, president of research firm Prestige Economics.

"It is unlikely the Fed would act significantly in the wake of having done so much at the September meeting."

Tensions support

While the gloomy global economy has hurt the outlook for fuel demand, oil prices are getting support from festering tensions in the Middle East.

An 18-month old conflict in Syria escalated this week, after Turkey stepped up its cross-border strikes against its neighbour to retaliate against shelling that killed five Turkish civilians.

The news amplified oil supply concerns after Iran's exports dropped following sanctions from the U.S. and European Union on the Middle Eastern nation's oil shipments.

An increase in rhetoric by Iran, the U.S. and Israel over Tehran's disputed nuclear programme is also adding to the nervousness of the already jittery investor community.

The European Union is drawing up plans to also ban Iranian gas imports, in its latest move to ratchet up pressure on the country, sources said.

Elsewhere, OPEC member Venezuela will go to polls this weekend, with the outcome closely watched by oil markets.

"Venezuela's capability to develop its petroleum resources both in the short and long term holds significant implications for the evolution of world oil supplies," J.P. Morgan analysts said in a report.

"As such, the country's presidential election this weekend could mark a substantive pivot point for both domestic and world markets.” – Reuters




Tags: Middle East | Opec | Brent | Singapore | US jobs |

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