UPDATE 6-Oil retreats as risk aversion returns, EIA weighs

Wed Jan 11, 2012 11:32am EST

Related Topics

* Nuclear scientist blown up in Iran; Israel accused

* European debt problems sap confidence

* EIA stocks build more than forecast

* Brent falls below 200-day moving average (Adds EIA data, update on Iran, updates prices)

By Simon Falush

LONDON, Jan 11 (Reuters) - Oil fell on Wednesday as worries about Europe's debt problems reasserted themselves, reversing earlier gains prompted by a blast in Tehran that highlighted the possibility of oil supply disruption from Iran.

The negative move was exacerbated after the U.S. Energy Information Administration said crude oil and refined product inventories soared last week, more than forecast as crude imports jumped and refining rates rose.

"Stats look bearish with substantial builds across the board," said Tony Machacek at Jefferies Bache.

However, he added that strong import data from China the previous session and news from Iran was acting as a support for prices.

Brent crude oil futures were 96 cents down at $112.32 a barrel by 1559 GMT. It was below its 200-day moving average around $112.67, a bearish technical indicator.

U.S. crude was down $1.51 at $100.73 a barrel.

European debt problems were brought to the fore by comments from ratings agency Fitch that pushed demand-sensitive assets like oil and equities lower.

The European Central Bank should ramp up its buying of troubled euro zone debt to support Italy and prevent a "cataclysmic" collapse of the euro, said David Riley, the head of sovereign ratings for Fitch.

Oil had risen earlier after an Iranian nuclear scientist was killed by a bomb placed on his car in an attack Tehran's deputy governor blamed on Israel, reigniting worries about supply from the region.

Oil investors worry that tensions between the West and the Islamic republic could escalate further after the bombing, which comes as the U.S. seeks to persuade China to help toughen sanctions against the exporter over its nuclear programme.

Russia opposes U.S. and possible European oil sanctions against Iran, even if Tehran presses ahead with uranium enrichment which Western powers say serves military goals, Deputy Foreign Minister Sergei Ryabkov said on Wednesday.

However, some analysts said the impact on oil may not be as great as some were expecting.

"Oil's down on a general risk-off play, but I think people are also starting to reassess just how much impact events in Iran will have," said Gareth Lewis-Davies, analyst at BNP Paribas.

"Any EU embargo will take time to be put into place, and the oil will just end up going to Asia, while Saudi Arabia will increase its production."

China gave no hint on Wednesday of giving ground to U.S. demands to curb Iran's oil revenues, rejecting Washington's sanctions on Tehran as overstepping even as Treasury Secretary Timothy Geithner lobbied for Beijing's support.

Events in Nigeria were also being watched, as oil workers threatened on Wednesday to shut down output in Africa's top crude producer, deepening a national strike over a more than doubling of petrol prices. (Additional reporting by Seng Li Peng in Singapore; editing by Anthony Barker and Alison Birrane)

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