Brent edges above $107 after slump; U.S. fiscal woes weigh

Wed Nov 7, 2012 10:38pm EST

Related Topics

* U.S. fiscal cliff back in focus after election

* Europe worries revived, Draghi says economy to stay weak

* Coming Up: ECB rate decision at 1245 GMT

By Ramya Venugopal

SINGAPORE, Nov 8 (Reuters) - Brent crude rose above $107 per barrel in Asia on Thursday as an almost 4 percent slump in the previous session, its biggest fall in about a year, lured in some buyers although worries on the U.S. fiscal cliff and Europe's woes kept a lid on gains.

Oil led a slump in commodities on Wednesday as concerns shifted to a shaky global economy and its impact on demand, after the uncertainty about the U.S. presidential race faded with Barack Obama's re-election.

"What we're seeing is some short-covering, but I don't expect oil to rebound completely," said Ken Hasegawa, a commodity sales manager at Newedge Japan in Tokyo.

"With all these uncertainties in Europe and the U.S., I don't think oil demand will increase."

Front-month Brent futures traded 52 cents higher at $107.34 per barrel at 0335 GMT. Brent's near 4-percent slump on Wednesday was its steepest since December 2011.

U.S. crude rose 42 cents to $84.86 a barrel, after losing nearly 5 percent in the previous session, also its biggest slump since December 2011.

Investors were also monitoring the impact of a second winter storm that hit the U.S. Northeast on the heels of devastation by Hurricane Sandy as well as data showing higher U.S. inventories of crude and products last week.

"FISCAL CLIFF" AND EUROPE

After weeks of range bound trading ahead of the U.S. presidential elections, the market began to focus on economic uncertainties post election.

Topping the list is negotiations on "fiscal cliff," a $600 billion package of spending cuts and tax increases that may trim the deficit but push the fragile U.S. economy into deep recession.

Weakness in the U.S. economy at a time when China is struggling to push up its growth rate and Europe is grappling with its debt crisis may derail the global economic recovery even further.

Europe's crisis swung back into focus after European Central Bank Chairman Mario Draghi said the euro zone economy will remain weak in the near term, even as he hinted at unlimited intervention in the region's sovereign markets.

Investors will also be monitoring the one-in-a-decade leadership change in China, the world's No. 2 energy consumer, as President Hu Jintao hands over charge to his successor Xi Jinping, although there are no real concerns about changes in policy.

MIDDLE EAST

But supply concerns with increasing violence in the Middle East are expected to keep prices supported.

Syrian rebels fired mortars at President Bashar al-Assad's palace in Damascus on Wednesday but missed, in an attack underlining the growing boldness of forces fighting to end his family's 42 years in power.

In Yemen, a gunman shot dead a Yemeni security officer near the interior ministry in the centre of the capital Sanaa on Wednesday, a police source said, blaming al Qaeda.

The U.S. and Yemen's neighbour Saudi Arabia are keen to stop al Qaeda and other Islamist militants strengthening their hold on a country which is close to major shipping lanes.

Reining in gains, data showed that U.S. crude and product stocks rose last week in spite of inventory drops on the East Coast, where Hurricane Sandy interrupted imports, refining activity and fuel supply chains.

Domestic crude stocks rose 1.77 million barrels in the week to Nov. 2, government figures showed, in line with analyst forecasts in a Reuters poll for a rise of 1.8 million barrels. (Editing by Himani Sarkar)

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