Brent heads to below $111 on Europe's debt worries

Brent crude slipped, heading to below USD 111 on Thursday, on concerns about demand growth, as France and Germany clash over the role the European Central Bank should adopt to rein in the region's sovereign debt crisis.

As the outlook for Europe worsened, investors turned their attention to the world's top oil consumer, the United States, for clues to demand outlook, following a series of positive economic numbers. The US benchmark on Wednesday closed above USD 100 for the first time since June, on news of a critical pipeline reversal that will help ease a glut in the Midwest.

Brent crude slipped 54 cents a barrel to USD 111.34 by 0341 GMT, after falling as low as USD 110.58. US crude fell 51 cents to USD 102.08 as investors booked profits after the contract surged more than USD 3 in the previous session in the most active trading session since Libya's civil unrest in February.

"We are beginning to see a decoupling between the United States and Europe because of the recent series of positive economic data," said Tetsu Emori, a fund manager at Astmax Co Ltd in Tokyo. "Earlier talk was about global demand, but it is now more about US demand as that economy is getting better, and the pipeline news has helped."

Enbridge Inc and TransCanada Corp have raced forward with new pipeline plans in the fierce battle to unclog a year-long US oil bottleneck, which could quickly end an unprecedented distortion in crude markets.

After purchasing ConocoPhillips' stake in the 350,000 barrel-per-day Seaway pipeline for USD 1.15 billion, Enbridge and Enterprise Products Partners said they plan to reverse the line's flow to send crude locked up at the Cushing, Oklahoma, oil hub to the Texas coast.

On the economic front, industrial output in the world's biggest economy rebounded strongly, while consumer prices fell in October for the first time in four months, adding to the recent series of positive numbers.

Data showing a slide in crude oil inventories in the United States also helped support prices. Crude stockpiles fell 1.1 million barrels, down for a second straight week, while distillate supplies, which include heating oil and diesel fuel, dropped for the seventh consecutive week.

Spread, price outlook

The strength of the US benchmark may pare the price difference with the European benchmark Brent to about USD 5-USD 6 a barrel by the end of the year, Emori said, compared with more than USD 28 touched in October.

His views were echoed by JP Morgan, which sees the spread narrowing to USD 5 and USD 3 per barrel in 2012 and 2013, respectively.

Brent will fall further to USD 108 per barrel, as it dropped below a triangle, while US oil may surge further towards USD 106 per barrel, as the current strong bullish momentum could push the price out of a narrow rising channel, according to Reuters market analyst Wang Tao.

In Europe, France and Germany, the region's two key powers, have stepped up their war of words over whether the European Central Bank should intervene more forcefully to halt the euro zone's debt crisis after modest bond purchases failed to calm markets.

Concerns over Europe's ability to stop the sovereign debt crisis from spinning out of control pulled Asian shares and the euro lower. Base metals also fell, while gold edged lower.