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Brent falls below $112 on U.S. recession fears

Sep 4, 2011, 11:36 p.m.
A customer fills his Aston Martin DB9 car at a petrol station, in south London, March 2, 2011. REUTERS/Andrew Winning

By Francis Kan

SINGAPORE (Reuters) - Brent crude fell below $112 a barrel on Monday, as fears of another U.S. recession slowing fuel demand overshadowed supply concerns over a major shutdown of offshore oil production forced by Tropical Storm Lee.

U.S. employment growth ground to a halt in August, reviving recession fears and piling pressure on both President Barack Obama and the Federal Reserve to provide more stimulus to aid the frail economy.

Front-month Brent fell 88 cents to $111.45 a barrel by 0624 GMT (2:24 a.m. ET). Brent plunged almost $2 a barrel on Friday on the disappointing jobs data released in the U.S.

U.S. crude was down a dollar to $85.45 a barrel, after settling $2.48 lower at $86.45. Friday's losses wiped out part of U.S. crude's 4.1 percent gain in the week through Thursday.

"The macro situation is leading to fears of a double-dip recession. And there has been a recent trend of selling into strength when the market hits a soft patch," said Chen Xin Yi, a commodities analyst at Barclays Capital in Singapore.

"That said, the fundamentals in the oil market remain strong and any upside surprise in macro data releases from what is evidently now a low base of expectations should spur further gains."

Asian stocks followed Wall Street lower on Monday, after the U.S. Labor Department said employers added no net new jobs last month and July's total was revised lower.

Compounding fears of a recession in the United States, Europe faces a string of political and legal tests this week that could hurt efforts to resolve its sovereign debt.

In China, the services sector grew in August at the lowest pace on record, a private survey showed, as new orders ebbed and tightening measures to rein in an exuberant property sector started to pinch.

Worsening economic woes may raise the odds of another bond buying program, or quantitative easing, by the U.S. Federal Reserve. That could cheapen borrowing, weaken the dollar, and encourage investment in commodities as an asset class.

"This is likely to bring further calls for quantitative easing, despite the Fed's apparent aversion," said CMC Markets market strategist Michael McCarthy in a research note.

Brent oil will fall further to $109.01 per barrel, while U.S. oil is also expected to fall more to $84.20 per barrel, according to Reuters market analyst Wang Tao.

STORM WATCH

Providing some support for prices was oil companies' shutdown of more than half the crude production in the U.S. Gulf of Mexico due to Tropical Storm Lee, which is hindering efforts to restaff and restart oil and gas platforms in the basin.

Lee reached Louisiana's coast early Sunday, but was moving inland very slowly. Its 45 miles-per-hour (75 km/h) winds grounded helicopters on standby for oil and gas companies that would have otherwise ferried workers out to do post-storm assessments and restaff facilities.

"Reports that about 60 percent of crude refinery capacity was halted while Tropical Storm Lee hit the coast could lead to further declines in crude stockpiles in the latest government inventory report," ANZ Bank said in a research note.

Another storm, Hurricane Katia, intensified over the open Atlantic on Sunday, bulking up to a powerful Category 2 storm, the U.S. National Hurricane Center said.

The Miami-based hurricane center said it was still too soon to gauge the potential threat to land or to the U.S. East Coast with any certainty.

But most computer models showed the storm veering on a northeast track out to sea after moving safely west of the mid-Atlantic island of Bermuda later this week.

MIDDLE EAST, NORTH AFRICA RISKS

The European Union imposed a ban on purchases of Syrian oil on Saturday and warned of further steps unless President Bashar al-Assad's government ended its five-month crackdown on dissent.

In Libya, forces loyal to Muammar Gaddafi refused on Sunday to give up one of their last strongholds without a fight, raising the prospect of an assault on the town of Bani Walid.

The EU has lifted sanctions on Libyan ports and oil firms, but few expect the country's normal oil production -- around 1.6 million bpd -- to be restored soon, after a civil war halted its oil sector this year.

(Editing by Clarence Fernandez)

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