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Brent falls below $112 as Fed doubts weigh

Singapore, January 4, 2013

Brent crude fell below $112 a barrel on Friday as growing doubts within the U.S. Federal Reserve about the side effects of its stimulus programme, and the prospect of more budget battles in Washington, curbed investor appetite for riskier assets.

Investors netted profits on oil after prices rose earlier this week as the U.S. Congress approved a fiscal deal that averted economic calamity. Further talks in Washington next month to tackle the debt ceiling, and signs of hesitation within the Fed about more increases to the central bank's $2.9 trillion balance sheet, weighed on prices.

Brent crude for February delivery had dropped 68 cents to $111.46 a barrel by 0736 GMT, although it is set to post a second straight week of gains. U.S. crude was down 73 cents to $92.19, but on track for a fourth weekly rise.

"Most people do not want to take further risks in equities and commodities if the QE (quantitative easing) programme is not going to continue beyond 2013," said Tetsu Emori, a commodities fund manager at Astmax Investments in Tokyo.

While the Fed said it would keep buying bonds to boost the economy over coming months, minutes of a December meeting showed that some officials are increasingly concerned about the programme's potential risk to financial markets.

Several officials thought it would be appropriate to slow or stop asset purchases well before the end of 2013, the minutes showed.

The Fed's asset buying policy has been a crucial factor underpinning investor risk appetite, which buckled after the minutes were released. Global equities fell and the U.S. dollar gained, making dollar-denominated oil more expensive for holders of other currencies.

Data eyed

Yet oil could get a boost later on Friday if jobs and oil inventory data from the United States affirms that the world's largest economy and oil consumer is on track for a recovery.

Thursday's data from the American Petroleum Institute showed a steeper-than-expected drop of 12 million barrels in crude inventories in the week to Dec. 28. Analysts were expecting a 900,000 barrel draw. Data from the U.S. Energy Information Administration is due later on Friday.

"That's a very good number," Astmax's Emori said, adding that market sentiment will be positive if the EIA data follows the API's.

The U.S. government will also release non-farm payroll data, a key economic indicator that could offer further evidence of underlying strength in the economy as 2012 ended. The latest jobs data showed that private-sector employers shrugged off the looming budget crisis and stepped up hiring in December.

"If the positive news continues, there is likely to be a piling on of traders, as the story for 2013 becomes an even more compelling one," Jason Schenker, president of Texas-based Prestige Economics, said in a note.

Yet oil product prices may come under pressure as supply will rise when Motiva Enterprises restarts its new 325,000 barrel-per-day (bpd) crude distillation unit at its Port Arthur, Texas, refinery. – Reuters




Tags: US | Brent | Singapore | Crude | Stimulus |

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