Brent slips below $114 ahead of Italy’s election results

25 February 2013, Newswire – Brent futures slipped below $114 per barrel on Monday, reversing some of the gains made in the previous session on concerns about China’s demand growth as manufacturing output in the world’s second biggest oil consumer pulled back from two-year highs.

Reuters reported the HSBC flash purchasing managers’ index (PMI) for February slipping to 50.4, down from the previous month’s final reading of 52.3 – the best since January 2011. Further losses on Brent were stemmed as investors waited on Italy’s election results.

Front-month Brent slipped 18 cents to $113.92 a barrel by Monday morning, after settling 0.5% higher on Friday. US oil declined 11 cents to $93.02, after ending 29 cents up at the end of last week.

“The reason for the decline this morning is the China PMI numbers, but prices have not lost much ground,” Reuters quoted Newedge commodity sales manager Ken Hasegawa as saying from Tokyo.

“Oil will trade in a tight range today till Italy’s election results are out. Investors want to get a sense how things will unfold in Europe.”

Italians finish voting on Monday in one of the most closely watched and unpredictable elections in years, with rising concern that the ballot may not produce a government strong enough to pull the country from its economic slump.

Stakes are high for the euro zone, with Italy being the third largest economy in the 17-member bloc. The prospect of political stalemate could reawaken the threat of dangerous market instability, Reuters stated.

According to Hasegawa, Brent is expected to trade within a tight range of $113 and $115 per barrel over the next 24 hours.

Reuters technical analyst Wang Tao said Brent would likely hover above a support at $113.59 for one more session before breaking this level and falling to $111.97, while U.S. oil may rebound to $94.17.

In the US, investors wait on testimony on Tuesday from Federal Chairman Ben Bernanke for further clues of when the Fed may slow or stop buying bonds.

Financial markets were rattled last week after minutes of the Fed’s January meeting suggested some Fed officials were mulling scaling back its strong monetary stimulus earlier than expected. Brent fell nearly 2% on Thursday (its steepest since November) during the two-day sell-off fuelled by those worries. It ended the week down 3%.

Markets also worried about the outcome of budget cuts in the US as the White House and the Republicans have so far failed to reach an agreement. The Republicans want President Barack Obama to be flexible in how cuts are made, while the White House has said the law forced across-the-board cuts.

With five days left before $85 billion is slashed from US government budgets, the White House issued more dire warnings about the harm the cuts will do to Americans, breaking down the loss of jobs and services to each of the states.

“The Italian election result and the outcome of Congressional negotiations on the automatic US budget cuts are the major risk events for this week,” Reuters quoted CMC Markets chief market analyst Ric Spooner as saying in a report.

“Both have the potential to influence consensus attitudes toward global risk.”

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