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Brent steady under $119; supply worries

Singapore, April 23, 2012

Brent held steady under $119 a barrel on Monday, as supply worries stemming from tightening Western sanctions on Iran and stabilising factory activity in China countered lingering concerns over the euro zone debt crisis.      

Iran's crude exports have slipped to 2.1 million barrels per day (bpd), compared with an average of 2.3 million bpd in the last Iranian year that ended on March 19, Iranian oil officials said according to a report published on Friday.      

Brent crude rose 4 cents to $118.80 a barrel, while US crude was 15 cents lower at $103.73.     

"On the supply side, Iran continues to be a risk which we can't ignore at all," said Ric Spooner, chief market analyst at Australia-based CMC Markets.     

"It seems quite unlikely that we will be seeing any swift resolution to the standoff between the West and Tehran over their nuclear programme."     

Tightening sanctions on Iran over the Islamic Republic's disputed nuclear programme helped send Brent prices above $128 a barrel in March, the highest since 2008.      

The European Union is also planning an embargo on Iranian oil imports from July 1. While a review is possible in the next two months, there is no economic reason now to change plans for the ban, a senior EU official said on Friday.      

At a group of 20 finance ministers' meeting in the United States last week, officials issued a communique which outlined an agreement between the group and emerging nations to closely watch oil prices and carry out "additional actions" as needed as well as welcome the commitments by producing countries to ensure adequate supply.   

China's factories stabilised in April with output inching higher, although it was still not enough for a private sector survey to flag a return to an expansionary cycle.     

The HSBC Flash Purchasing Managers Index, the earliest indicator of China's industrial activity, recovered slightly to 49.1 in April from a final reading of 48.3 in March, but still remained below the level that signifies contracting economic activity for the sixth month running.     

"We can expect to start seeing economic and fiscal policy from the Chinese government that is more accommodative towards stimulating the economy from now on," said Tony Nunan, a Tokyo-based risk manager at Mitsubishi Corp said.      

"They (Chinese government) could adjust interest rates, reserve ratios for banks... the Chinese government has many tools it can draw on to boost the economy."     

Economists in a Reuters poll last week forecast that China would cut required reserve ratios (RRR) for the country's big banks by 150 basis points by the end of the year to keep money supply and credit growth steady to cushion an economy on track for its slowest full year of growth in a decade.      

China's annual rate of GDP growth slowed to 8.1 per cent in the first three months of 2012, down from Q4 2011's 8.9 per cent, below consensus forecasts but above the most bearish investor calls, leading many analysts to believe that the downswing in the world's second-biggest economy may have bottomed out.           

The view that the risk of a hard economic landing for China, the world's second largest oil consumer, has now largely passed is expected to support crude prices, but concerns that the euro zone debt crisis would dent demand may keep a lid on gains.      

In Europe, Spanish and Italian bond yields were still near dangerously high levels, while the prospect of a Socialist candidate winning the French presidential election added to worries whether the powerful Franco-German ally that has helped set tones in the region's battle against its debt problems will remain intact.        

The global finance ministers meeting in Washington continued to press Europe to quickly put in place the necessary reforms to stamp out its debt crisis.       

However, the contagion risk of Europe's debt issues eased slightly as the International Monetary Fund managed to more than double its lending power in a bid to protect the world economy from the euro zone debt crisis, which is now in its third year. – Reuters




Tags: Brent | Singapore | Supply Worries | Western Sanctions |

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