Brent slips below $111 on bleak US data, 'fiscal cliff' worries

Tue Dec 4, 2012 8:33am IST

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* Weak U.S. data, fiscal uncertainties keep markets on tenterhooks

* Israel, Syria worries keep prices supported

* Coming up: U.S. API weekly stocks data; 2130 GMT

By Ramya Venugopal

SINGAPORE, Dec 4 (Reuters) - Brent futures slipped below $111 per barrel on Tuesday as demand concerns moved into focus after weak manufacturing data from top consumer the United States, while uncertain U.S. fiscal deficit negotiations also kept investors on the edge.

But supply worries stemming from simmering tensions in the Middle East including a fragile ceasefire between Israel and Palestine and worsening unrest in Syria helped cushion prices.

"Oil markets are starting to come off on the weaker-than-expected manufacturing data and the fact that the U.S. economic outlook remains unclear," said Natalie Rampono, commodity strategist at ANZ in Sydney.

"We are also seeing mixed headlines on the "fiscal cliff" negotiations, so markets have already taken on a cautious outlook on that account."

Front-month Brent futures slipped 29 cents by 0258 GMT to $110.63, after breaking through a key resistance level to close below its 200-day moving average in the previous session.

U.S. crude slipped 32 cents to $88.77 per barrel. Following its inability break above resistance at $90.30, the contract will probably head into a $87.19-$87.93 range, according to Wang Tao, Reuters market analyst, commodities and energy technicals.

U.S. WORRIES

Investors have been fretting about the fiscal health of the world's biggest economy, especially in light of the ongoing weakness in the crisis-ridden euro zone.

Concerns increased after the Institute for Supply Management (ISM) said on Monday that its index of national factory activity fell to 49.5 in November from 51.7 the month before, the lowest since July 2009.

The U.S. data outweighed the positive impact from Chinese manufacturing data earlier on Monday, which reaffirmed the view of a pickup in the world's biggest energy consumer.

Adding to jitters is the increasing uncertainty on negotiations to avert a "fiscal cliff", a $600 billion package of spending cuts and tax increases effective early 2013 that threatens to tip the economy back into recession.

The White House dismissed a proposal from congressional Republicans on Monday that included tax reforms and spending cuts, saying it did not meet President Barack Obama's pledge to raise taxes on the wealthiest Americans.

MIDDLE EAST CONFLICT

Incessant tensions in the Middle East and related worries about the impact on oil supplies from the region continue to support prices.

The biggest concern at the moment is that the fragile ceasefire between Israel and Palestine may be at risk after Israel said it will continue to expand its settlements in West Bank and East Jerusalem.

An escalation of a 20-month old civil conflict in Syria, which worsened after the government spokesman fled the country and the United Nations decided to withdraw its non-essential staff, added to fears of supply disruptions.

Investors are also awaiting inventory data from the American Petroleum Institute (API) due later on Tuesday. Crude stocks are expected to have risen by 100,000 barrels in the week ended Nov 30, a preliminary Reuters poll showed. (Editing by Himani Sarkar)

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