ET:Oil steady over $116 as QE balances growth worries
LONDON: Brent crude oil held above $116 a barrel on Monday, steadying after seven days of gains on expectations U.S. economic stimulus measures would boost commodities and other risky assets.
Brent hit a four-month high of $117.95 on Friday after the Federal Reserve announced a plan to pump $40 billion a month into the U.S. economy in a third round of quantitative easing (QE) aimed at strengthening the jobs market.
Previous U.S. attempts to stimulate the economy have pushed up oil prices sharply, but economists are worried high oil prices could curb fuel consumption and dampen economic growth.
Brent futures for November slipped 20 cents to $116.46 a barrel by 1130 GMT. U.S. crude fell 25 cents to $98.75 a barrel, down from an intra-day high of $100.42 on Friday.
"Money from the U.S. stimulus has to go somewhere and quite a lot of it will go into oil," said Olivier Jakob, energy market analyst at Petromatrix in Zug, Switzerland. "There is a risk that any retracement in oil prices will be bought into."
Investors are particularly concerned rising fuel prices could curb economic growth in China, which has helped keep the world economy afloat while many western nations have faced recession.
"Rising prices make it more difficult for consumers like China," said Ric Spooner, chief market analyst at CMC Markets. "If we continue to see a further deterioration or a lack of pick-up in the Chinese economy, then you would be expecting Beijing to step up stimulus spending."
Analysts polled by Reuters forecast China's economy would slow further in the third quarter but regain some momentum late in the year as the impact of policy easing fully kicks in.
Still, even if activity rebounds modestly in the fourth quarter, it would drag full-year economic growth to below 8 percent, a level not seen since 1999.
MUSLIM ANGER
Oil has also been boosted by anti-Western demonstrations over a film mocking Islam's Prophet Mohammad and the continued dispute between the West and Iran's nuclear programme. The tensions brought the risk of a supply disruption in North Africa and the Middle East into focus.
Thousands of protesters took to the streets of the Afghan capital on Monday, setting fire to cars and shouting "Death to America," the latest in demonstrations that have swept the Muslim world.
Protesters have since late last week attacked the U.S. embassies in Yemen, Egypt and Tunisia while the United States sent warships towards Libya, where the U.S. ambassador was killed by demonstrators. Demonstrations have also taken place in Kuwait, Iran, Bangladesh, Morocco and Sudan.
"Any breakdown in law and order in the Middle East or North Africa is potentially bullish for oil as it could impact on production," Jakob said.
Tension between the West and Iran is also a worry for the oil market as the United States and its allies attempt to curb what they say is a drive by Tehran to build a nuclear weapon.
