Brent slips on weak global data, firm dollar

Brent crude futures fell on Tuesday, after rising nearly USD 2 a the previous day, as worries about global economic growth and a stronger dollar reduced appetite for risky assets.

The focus was on the euro zone crisis ahead of a meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel.

By 1117 GMT, September Brent crude futures were USD 1.06 lower at USD 108.85 a barrel, having plumbed earlier lows of USD 108.39. US crude fell by USD 1.30 cents to USD 86.58.

"All eyes are on this European meeting today, so it's going to be rather choppy and volatile ahead of that," GFT Global market strategist David Morrison said. "(Oil is) reacting to the weakness in the euro, the strength in the dollar, and there is a general risk-off mode ... traders taking money off the table."

Manufacturing in the New York area contracted for a third straight month in August, data showed on Monday, dashing any lingering hopes for a rebound in the second half of the year.

The survey is one of the earliest regional guideposts to US factory conditions, and analysts said it boded poorly for the larger national survey due at the beginning of September.

"In the current economic climate we see therefore little sustainable upside in buying Brent above USD 110 a barrel," Petromatrix's Olivier Jakob said in a note.

Worries about the faltering economic recovery also gained prominence after data from European powerhouse Germany showed its gross domestic product growth slowed more than expected in the second quarter.

"The overall feeling looking at the Germany data is that the outlook for global growth doesn't look particularly good, in which case the upside to oil is capped into the medium term," Morrison added.

Oil prices were also pushed lower by a stronger dollar, which makes commodities priced in the greenback more expensive for holders of other currencies.

The dollar was up 0.40% against a basket of currencies by 1138 GMT. The greenback had fallen to a near three-week low against the euro on Monday.

VTB Capital analyst Andrey Kryuchenkov said Brent prices continued to trade in parallel with the UK blue chip index performance.

"Brent's monthly rolling correlation to the FTSE 100 index remained at a more than a one-year high, near 95%, with intraday direction still dictated mostly by the equity markets at the moment", he wrote in a note.

The market will be watching for a slew of US economic reports that come out this week, including housing starts and industrial production data later on Tuesday, for clues on the health of the world's biggest economy.

Concerns over the US recovery and the ongoing euro zone crisis have dragged down oil prices this month. Brent surged on Monday as hopes for a resolution to Europe's issues rose ahead of the Tuesday meeting between French and German politicians.

While the risk of a new US recession has risen over the past couple of months, an outright contraction will most likely be avoided, Atlanta Federal Reserve Bank President Dennis Lockhart said on Monday.

The World Bank called for national governments to seek long-term debt curbs to solve the current sovereign debt crises in Europe and the United States but said it was too early for special action by the Group of 20 nations.

Supply concerns

The shutdown of a North Sea oil well at a Royal Dutch Shell Plc field after an oil leak looked unlikely to affect supplies significantly from the home of the Brent oil benchmark, oil traders said on Monday.

In the United States, crude oil stock piles are expected to have fallen for a second straight week due to lower imports, a preliminary Reuters poll showed ahead of weekly inventory data.

Supply disruptions caused by the ongoing fighting in Libya should continue to underpin prices, despite the worries on the economic front.

Forces loyal to Muammar Gaddafi fired a Scud missile for the first time in the country's civil war, a US defence official said, after rebel advances left the Libyan leader isolated in his capital.

"We continue to believe that the return of Libyan crude supplies to the market will be seen in 2012, and as such any sell-off associated with headlines of a regime change in the country provide consumers with a good hedging opportunity," JP Morgan analysts said in a report on Monday.

In Syria, where a five-month-long street uprising against President Bashar al-Assad's autocratic rule has so far had little impact on the country's 400,000 barrel per day oil production, the military broadened its assault over the weekend to try to put down protesters.