Brent rises above $112 but wary of euro crisis

By Christopher Johnson

LONDON (Reuters) - Brent crude rose above $112 per barrel on Tuesday after strong U.S. retail sales data and solid German and French growth but worries over the outlook for euro zone deepened as austerity measures threatened to tip the bloc into recession.

Fuel consumption closely reflects economic activity and increasing demand in the United States, the world's biggest oil consumer, is a key support for oil.

U.S. retail sales rose broadly in October, suggesting the economy started the fourth quarter with some vigour, and the first drop in wholesale prices in four months pointed to subsiding inflation pressures.

Figures from Europe were also supportive, showing the German economy grew 0.5 percent in July-September and that France expanded by 0.4 percent, after contracting 0.1 percent in the previous three months.

But the euro zone debt crisis kept markets on edge with countries such as Italy, Greece, Ireland, Portugal and Spain all forced to adopt tough austerity measures in order to stop the bond market driving them towards default.

Brent futures for December rose $1.25 to a high of $113.14 before slipping back to trade around $112.60 by 1530 GMT. U.S. crude oil rose 90 cents to $99.04.

"The U.S. data helped, especially the retail sales, the Germany and France growth wasn't so bad and the expiration of December Brent and U.S. crude options will add to the volatility even as everyone worries about Europe's debt problems," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

ICE Brent headed for one of the quietest expiries of its front contract in months on Tuesday, reflecting a better supplied prompt oil market in Europe as Libyan and sweet West African crude oil flowed into the region, traders said.

The premium for ICE Brent for December over January traded around 60 cents per barrel, while the spread between December 2011 and December 2012 was below $2.20 -- both at or below their lowest for three months.

For a 24-hour technical outlook on Brent, click http://graphics.thomsonreuters.com/WT1/20111511084316.jpg

EFS

The premium for Brent futures over the U.S. crude benchmark narrowed to its lowest level in almost five months at $13.45, with analysts saying uncertainty over the euro zone was having a bigger impact on the European benchmark than U.S. crude.

Brent's premium to the Middle East marker Dubai also fell to its lowest level in nearly five months.

The Brent/Dubai Exchange of Futures for Swaps (EFS) for December notionally fell $1.09 from Monday's close to $3.30 a barrel, brokers and traders said.

Crude supply is on the rise in Europe as North Sea production stabilises while Libya ramps up output after the end of the country's civil war. The higher supply is facing weak demand in Europe as refiners struggle with poor refining margins. By contrast, strong demand for Middle East crude in Asia has underpinned Dubai quotes, traders say.

The Organization of the Petroleum Exporting Countries will watch market developments closely, Iran's OPEC governor Mohammad Ali Khatibi said on Tuesday.

OPEC failed to reach consensus on a production deal to contain crude oil prices at its last meeting in June. The group is scheduled to meet again in early December but is not at this stage expected to agree a deal on output levels.

Traders in Europe were most focused on the euro zone debt crisis and its implications for growth and demand.

The 17-nation euro zone economy grew a modest 0.2 percent in the third quarter from the second, the EU said on Tuesday, lifted by France and Germany, but economists say the bloc is almost certainly heading for a recession.

Expectations are that inventories in the world's top oil consumer the United States fell for the second straight time on lower imports and higher refinery runs.

On average, U.S. crude stockpiles were forecast down 1.1 million barrels for the week ended Nov. 11, a preliminary Reuters poll of analysts showed. In the week to Nov. 4, crude stocks fell 1.37 million barrels to 338.09 million.

The forecasts were issued ahead of the American Petroleum Institute's inventory report due at 4:30 p.m. EST (2130 GMT). The U.S. Energy Information Administration will issue its weekly data on Wednesday at 10:30 a.m. EST (1530 GMT).

(Additional reporting by Angela Bulgari in London and Manash Goswami in Singapore; editing by James Jukwey)