February 16, 2012 / 1:17 AM / 6 years ago

Brent slips on Greece woes; stays above $118 on supply fears

A view of a drilling rig and distant production platform in the Soldado Field off Trinidad's southwest coast, September 10, 2011.Andrea De Silva

SINGAPORE (Reuters) - Brent crude prices slipped on Thursday on fears of a delay in a second bailout package for debt-ridden Greece, although worries of supply disruption from Iran and U.S. data showing an unexpected drop in inventories limited the drop.

Prices rose to a six-month high in the previous session on supply worries as Iran declared progress on its nuclear capabilities, including ability to enrich uranium faster, triggering concerns of rising tension with the West.

Brent crude retreated by 36 cents to $118.57 a barrel by 0400 GMT, after settling at $118.93 on Wednesday. U.S. crude slipped 29 cents to hold at $101.51, while the premium of the European benchmark over U.S. crude remained below $17.

"The volatility in risk assets, concerns of supply in the Middle East, and drawdown of U.S. crude inventories are all putting a floor on oil prices," Ben Le Brun, market analyst at OptionsXpress. "Tensions in Iran will always be supportive of oil prices regardless of growth concerns."

Iran's President Mahmoud Ahmadinejad comments on Wednesday showed Tehran's resolve to pursue a nuclear program, without any signs of wavering despite tighter Western sanctions.

STOCKS DRAW DOWN

Additional support for oil prices came from the U.S., after latest data showed a surprising drop of 171,000 barrels in the week to February 10 in crude oil stockpiles last week, against a forecast for a 1.5 million-barrel increase.

Crude stocks held at the Cushing, Oklahoma, delivery hub for U.S.-traded crude oil futures rose to their highest level since September, posting a 2 million-barrel build, the biggest weekly increase since December 2009.

The current tightness in oil fundamentals are being underestimated and the non-OPEC supply for this year could grow by just 0.37 million barrels per day, instead of the one million bpd market expectations, analysts at Barclays said.

"While OPEC crude oil output has reached near three-year highs of 31 million bpd, supplies have been crippled in the former-Sudan, Yemen and Syria, the combined output of which countries normally totals almost 1.2 million bpd," they said in a report dated Wednesday.

Technical problems at North Sea's Buzzard and structural declines in the UK production continues, compounding supply shortfalls, they said.

Yet, oil fell in line with broader markets due to worries that Greece's debt crisis will worsen and hurt the global economy. Asian shares, the euro to copper, all lost ground as policymakers fail to arrive at a concrete decision.

After a three-hour teleconference between euro zone finance ministers, a government official in Germany said questions still remained from the Greek side, possibly delaying a final decision on the bailout.

WEAK GLOBAL ECONOMY OUTLOOK

Higher oil prices could be detrimental to the global economy, which already shows signs of weakening, analysts said.

Latest data shows that China drew $10 billion in foreign direct investment, down 0.3 percent from a year earlier for the third consecutive month of annual declines, as a shaky world economy sapped inflows.

Rating agency Moody's is taking ratings actions on 114 financial institutions in 16 European countries to reflect the impact of the continent's debt crisis and the deteriorating creditworthiness of governments in the region.

"It's getting to a stage to wonder when will the escalating prices start to have a downside effect on the global economy," said Le Brun. "When Nymex crude prices hit a $110, it will start to have a serious effect on the economy."

Reporting by Jessica Jaganathan; Editing by Manash Goswami and Ramya Venugopal

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