UPDATE 2-Brent slips towards $111 on profit-taking, US oil data

Mon Jan 7, 2013 1:01pm IST

* U.S. data shows crude imports lowest in a decade last week of 2012

* Manufacturing in U.S., China expanded in December

* U.S. jobs growth steady, service sector grew

* Coming Up: Euro zone producer price index; 1000 GMT (Recasts, adds quote)

By Ramya Venugopal

SINGAPORE, Jan 7 (Reuters) - Brent crude futures slipped towards $111 per barrel on Monday as profit taking and inventory data showing weak fuel demand in the United States offset optimism that the world's biggest economies are on a steady recovery path.

U.S. oil inventory data on Friday showed a build-up in refined products and a sharp drop in crude imports in the final week of 2012, triggering worries of weak implied fuel demand.

Front month Brent futures fell 8 cents to $111.23 per barrel by 0727 GMT, after rising 0.6 percent last week.

U.S. crude slipped 26 cents to $92.83 per barrel.

It added 2.5 percent last week after U.S. lawmakers reached a last minute agreement to avert a so-called "fiscal cliff", or tax hikes and spending cuts that had threatened economic growth.

"There is a bit of pullback in oil prices after the rally last week. Oil futures had gained quite a bit last week," said Victor Shum, senior partner at IHS Purvin & Gertz in Singapore.

U.S. employers kept up an even pace of hiring and the country's vast services sector expanded briskly, reports on Friday showed. Coupled with earlier data showing expansion in the manufacturing sector in the United States and China, this reinforced expectations for buoyant oil demand this year.

STABLE GROWTH

Manufacturing in top energy consumers the United States and China grew in December, suggesting oil demand may remain well supported.

"We are expecting an improvement in oil demand from China as well," said Natalie Rampono, senior commodity strategist at ANZ.

ANZ expects Brent to end the first quarter at $118 per barrel and U.S. crude at $96 per barrel.

Global markets will be watching the U.S. Federal Reserve's stance on monetary easing, after top Fed officials and some U.S. economists suggested the central bank might halt its asset purchases this year, she added.

This week's focus will also be on the European Central Bank and its moves to help pull the crisis-ridden region out of recession.

DEMAND WORRIES

U.S. net crude imports fell to their lowest in a decade, while stocks of refined products rose, data on Friday showed, suggesting weakness in implied demand.

Crude stocks plunged 11.1 million barrels in the final week of 2012, the biggest drop since February 2001, which analysts linked to a drawdown by refiners for year-end accounting purposes.

"To some extent the reported build in gasoline and distillate stocks reflected weak demand caused by lower deliveries to wholesalers also seeking to minimise year-end working capital," BNP Paribas analysts said in a report.

Investors mostly treated the fall as a year-end phenomenon that will be reversed in coming weeks, they added.

Investors will also be monitoring developments in the Middle East, where an escalating civil conflict in Syria prompted the U.S. to send troops to protect neighbouring Turkey from its spillover effect. (Additional reporting by Jessica Jaganathan; Editing by Clarence Fernandez and Michael Urquhart)

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