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Brent falls below $111 on U.S. recession fears

Sep 5, 2011, 12:43 a.m.
A customer fills his Aston Martin DB9 car at a petrol station, in south London, March 2, 2011. REUTERS/Andrew Winning

By Christopher Johnson

LONDON (Reuters) - Brent crude oil fell below $111 a barrel on Monday, as fears of another U.S. recession slowing fuel demand overshadowed concerns that a tropical storm may shut down some U.S. offshore oil production.

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

Brent futures for October fell $1.80 to a low of $110.53 a barrel, and by 0733 GMT (3:33 a.m. ET) were trading around $110.90.

U.S. crude futures were down $1.50 at $84.95 a barrel, after settling $2.48 lower on Friday at $86.45. Volume was relatively light with U.S. markets closed for Labor Day.

"Oil is falling on worries over weak demand, unemployment and talk of a double-dip recession," said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt.

"Prices are still being supported by speculation that the Federal Reserve may launch a third round of quantitative easing (QE3), but I think the market may be too optimistic on that. The first two rounds of easing did little to support the economy, so why should a third round be of any more help?"

Stock markets 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. <.EU>

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 crisis.

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.

Brent will fall to $109.01 per barrel, while U.S. crude oil is also expected to fall 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 on Sunday, but was moving inland very slowly. High 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.

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.

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 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.

(Additional reporting by Francis Kan in Editing by Alison Birrane)

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