SINGAPORE Brent crude held steady above $111 a barrel on Tuesday after ending the previous session more than $1 higher, with the lack of an agreement over the U.S. debt ceiling and a forecast increase in the country's oil inventory weighing on prices.
Federal Reserve Chairman Ben Bernanke on Monday warned the economy was still at risk from political gridlock over the deficit and urged lawmakers to lift the country's borrowing limit to avoid a potentially disastrous default. Investors were keeping a cautious watch on U.S. fiscal woes, and awaited more data from top economies to assess the global growth outlook.
Brent slipped 25 cents to $111.63 a barrel by 0434 GMT. The February contract, which expires on Wednesday, settled $1.24 higher, while the one for March delivery ended $1.11 up. U.S. oil slipped 24 cents to $93.90 a barrel.
"We have reached one of those levels where the market is taking a pause," said Ric Spooner, chief market analyst at CMC Markets. "There's a lot of work in progress still, and the market will look at more data due over the next few days to grasp the progress of growth in the global economy."
The U.S. Treasury says the country bumped into its borrowing limit on December 31, and it is now employing special measures to enable the government to meet its financial obligations.
U.S. leaders did agree at the beginning of January to extend tax cuts for all American families earning less than $450,000 a year to avoid a portion of the "fiscal cliff", but lawmakers must still navigate the debt limit and thrash out a deal over drastic automatic spending cuts that were postponed until March 1.
Prices are also under pressure on expectations of a rise in U.S. oil inventories for a second straight week on higher imports, a preliminary Reuters poll of analysts showed on Monday. The poll of six analysts forecast crude stocks to show a rise of 2 million barrels for the week ended January 11.
In the week of January 4, crude stockpiles rose by 1.3 million barrels, in line with expectations, according to the U.S. Department of Energy's Energy Information Administration (EIA).
Gasoline stockpiles were expected to have risen 3.1 million barrels for the week of January 11, from 233.1 million barrels the week before. Continued soft demand, steady production and a small rebound in imports were the reason for the climb in gasoline stocks, said Jim Ritterbusch, president of Illinois-based Ritterbusch & Associates.
Brent is biased to end its rebound from the January 11 low of $109.60 per barrel below a resistance at $112.42, while U.S. oil looks weak and may form a top around a resistance at $94.17, according to Reuters technical analyst Wang Tao.
Putting a floor on prices is lingering worries about supply disruption from the Middle East.
Iran could produce enough weapon-grade uranium for one or more nuclear bombs by mid-2014, and the United States and its allies should intensify sanctions on Tehran before that point is reached, according to a report by a group of U.S. nonproliferation experts.
President Barack Obama should also clearly state that the United States will take military action to prevent Iran from acquiring a nuclear weapon, the report said.
The West has slapped the toughest sanctions ever to force Tehran to end its controversial nuclear programme. Iran, which says it needs the technology to generate electricity, has threatened to block the Strait of Hormuz if it is attacked.
(Editing by Tom Hogue)