Brent crude slipped below $111 on Thursday, on concerns of demand growth after data from China, the second-biggest oil consumer, showed factory output slowed, while persistent concerns of Europe's debt crisis spreading took a toll.
Worries about demand growth overshadowed concerns over supply disruptions in the Middle East with tensions escalating with Iran. They also pared earlier session gains after the world's major central banks took coordinated action to keep the euro zone crisis from worsening.
Brent crude fell 9 cents to $110.44 by 0838 GMT, after rising to as much as $111.24. US crude fell 5 cents to $100.28 a barrel. "The pressure on Brent is the weak economy in Europe," said Tony Regan, analyst at Tri-Zen Capital in Singapore. "We are not sure if we are going to see significant growth in oil demand."
China's HSBC Purchasing Manager's Index (PMI) fell to a 32-month low in November at 47.7. The number suggested that Chinese factory activity had shrunk in the face of softening demand both at home and abroad.
Euro zone leaders have so far failed to restore confidence and some analysts now see a Dec. 9 Brussels summit as a make-or-break moment for the euro. The euro zone's woes may have temporarily overshadowed the impact of Iran's escalating tensions with the West and the threat of further sanctions, analysts said.
Tuesday's attack on the British embassy in Tehran by dozens of students and protesters angry over Britain's unilateral sanctions could provide extra ammunition to European governments pushing for stronger sanctions against Iran, in particular a contentious embargo on Iranian oil, diplomats said on Wednesday.
"You've got some pretty bullish news out there and Brent failed to rally on the back of it. What's the game?" said Jonathan Barratt, managing director at Commodity Broking Services in Sydney. "Every time when there's a problem in Iran, you don't see the prices coming off. They should go up 5-10 percent."
Apart from Iran, trouble was brewing in Sudan, which denied on Wednesday that it had halted landlocked neighbour South Sudan's oil exports in a transit fee row. But it said the country had confiscated crude shipments to make up for payments it claims South Sudan owes.
South Sudan split off into the world's newest nation on July 9, taking about three-quarters of the formerly united country's roughly 500,000 barrels per day (bpd) of oil production with it. The US benchmark, which had sharply lagged Brent for most of this year, will gain more focus, analysts said.
Although US crude inventories rose 3.93 million barrels to 334.75 million barrels in the week to Nov. 25, this has not dented sentiment for the benchmark. That's because traders expect Cushing oil barrels to balance out the extra supply, following news of the sale of a pipeline between the US Midwest oil centre of Cushing, Oklahoma, and the US Gulf and the announcement that flows in the pipeline could be reversed.
"People's focus now is on WTI rather than Brent. Towards the end of the year, the spread between the two could potentially be around $5-6," said Tetsu Emori, a commodities fund manager at Astmax Investments in Tokyo.
The current Brent-WTI spread is below $12, compared to nearly $28 on Oct. 14. "But be wary of the spreads," said Barratt, adding that the spreads could blow out if tension in Iran escalated and oil supplies were cut off. "It would be the same situation we had with Libya."