Brent Steady at $106 as Economy Worry Lingers

Brent crude futures held steady at $106 a barrel on Friday, but was on track for a fourth weekly loss and the longest losing streak since early 2010, as investors were jittery over signs of slowing global economic growth blunting oil demand.

Asian shares and the euro took a hit on Friday on a grim global economic outlook after weak data from the United States, China and Europe, and on the uncertain fate of Greece.

But losses were limited by fears of a supply disruption from the Middle East, as talks on Iran’s nuclear program reached a stalemate, with Western countries insisting Iran must cease uranium enrichment before sanctions against it can be eased.

London Brent crude inched up 2 cents to $106.57 a barrel by 0629 GMT after touching a session high of $106.98. U.S. light, sweet crude dropped 2 cents to $90.64, also on track for its fourth weekly loss.

“We’re going to see the volatility across all markets for some time on euro zone jitters, with prices being driven by headline news,” said Ben Le Brun, a Sydney-based markets analyst at OptionsXpress.

“Iran has some impact on oil markets but the risk is far outweighed by chaos in the euro zone over Greece, so what is really being factored into prices is the uncertainty of it all.”

The global economy appeared on shaky ground as the euro zone’s private sector contracted, U.S. manufacturing growth slowed and China’s once booming factories faltered.

In Europe, a downturn that started in smaller states on the euro zone’s periphery is now taking root in the core countries of Germany and France, where tepid growth had been the main ballast for the euro area economy.

Also worrying policymakers, demand for long-lasting U.S. manufactured goods rose less than expected in April, while weekly jobless claims dipped only modestly, adding to worry about the economy of the world’s largest oil consumer.

Offering a bright spot was the latest data from China indicating that its annual export and import growth showed signs of acceleration in the first 10 days of May.

Oil prices had earlier fallen after factory output from the world’s second biggest oil consumer faltered in May, as export orders fell to two-month lows, pointing to sluggish economic activity in the first half of the year and denting the outlook for oil demand.

A Reuters’ monthly oil poll, based on forecasts from 37 analysts, forecasts Brent <LCOc1> averaging $115.10 a barrel in 2012, down $2.20 from an April poll – the steepest month-on-month cut in the poll over the past year.

In 2013, Brent is seen averaging $113.20 a barrel, also a cut of $2.20 from April.

Iran Risk Premium

Iran accused world powers of creating “a difficult atmosphere” that hindered negotiations on its atomic energy program, stalling diplomatic work to defuse fears of an Iranian attempt to develop nuclear bombs.

After seeming conciliatory before the Baghdad talks, Iran insisted on its right to nuclear fuel enrichment. Both sides have agreed to meet again next month for talks, as danger lurked of a new Middle East war raised by Israeli threats to bomb Iran.

“The Iran situation will probably see a premium being built into oil prices regardless of the situation in Europe as I think the $15 destruction in prices we’ve seen (since early May) has already factored in the risk of Greece exiting the euro zone,” said Jonathan Barratt, chief executive of BarrattBulletin, a Sydney-based commodity research firm.

Rising tension over the past year has pushed global oil prices upwards as the West has broadened sanctions to bar Iran’s crude oil exports.

But some of the supply risks were eased when a top U.S. Republican said Western sanctions on Iran could rock global oil markets hard enough to justify a release of emergency crude reserves from consuming countries.

Despite lower Iranian output, overall OPEC supply is at its highest since 2008. Saudi Arabia and its Gulf Arab allies are likely to recommend leaving OPEC’s oil output target unchanged when producer countries gather next month.

Iran is quietly seething over the rise in Saudi output to more than 10 million bpd, the highest in 30 years, that is helping to cushion the impact of U.S. and European measures against Iran’s nuclear program.

CNBC