SINGAPORE: Brent crude held steady around $112 a barrel on Wednesday, supported by fears of possible supply disruptions from Iran and upbeat economic data from the United States and China.
Oil prices surged on the first day of trading in 2012, after Brent posted a 13 percent gain last year, as Iran threatened to choke off crude shipments through the strategic Strait of Hormuz in retaliation against tougher sanctions from the West over its nuclear programme.
Brent February crude fell 33 cents to $111.80 barrel by 0736 GMT, after rising more than 4 percent on Tuesday to settle at the highest since Nov. 15.
U.S. February crude was down 39 cents to $102.57 a barrel, following the highest close since May 10.
"The market typically starts the year bullish," said Jeremy Friesen, commodity strategist at Societe Generale.
"The New Year optimism and positive data will be supportive probably until the end of the month, but the reality of the debt overhang in the financial markets is going to weigh on economic growth."
Tensions between Iran and the West moved a notch higher after Tehran issued its most aggressive statement yet as new U.S. and EU financial sanctions take a toll on its economy.
Tehran threatened to take action if the U.S. Navy moves an aircraft carrier into the Gulf although the United States dismissed it, saying it would keep sending carrier strike groups through the Gulf.
"The market is right to price in more risk but some discount in the meantime is likely," Friesen said, adding that it was either discounting the ability or the willingness of Iran to carry out its threat.
"I don't think anyone thinks that Iran has anything to gain by doing it, and they will hurt themselves and their relationship with China."
GROWTH CONCERNS
Stronger-than-expected economic data from the United States and China buoyed oil prices, although concerns about the global economy persisted.
"Austerity measures in Europe and the United States will continue to weigh on growth," Friesen said.
U.S. manufacturing grew at its fastest pace in six months in December while U.S. construction rose to a near 1-1/2-year high in November, lifting hopes that oil demand at the world's largest consumer will improve.
U.S. commercial crude oil stockpiles were expected to have fallen last week as refiners drew down inventories and limited imports to lower their year-end taxes requirements, a preliminary Reuters poll ahead of weekly supply data showed on Tuesday.
The industry group American Petroleum Institute's inventory data is due at 2130 GMT on Wednesday, with the U.S. Energy Information Administration data following on Thursday morning.
French President Nicolas Sarkozy and German Chancellor Angela Merkel will meet on Jan. 9 to see how much progress Europe can make on their pledge for tighter fiscal integration.
"It will take a while to resolve this, but the market could get excited before meetings, creating more volatility," Friesen said.
