LONDON: Brent crude rose on Wednesday as proposals from the European Commission to issue joint bonds reassured investors hoping for a resolution to the euro zone debt crisis.
The move was muted, however, as uncertainty remained on the outlook for the euro zone and as data was due on U.S. stockpiles and demand from the US Energy Information Administration at 1430 GMT.
Brent crude futures were up 38 cents at $112.27 per barrel by 1234 GMT. US crude was down 81 cents at $89.40.
US crude stockpiles are likely to have fallen for a second consecutive week as preparations for Tropical Storm Lee disrupted production in the oil-rich Gulf of Mexico, an extended Reuters poll showed on Tuesday.
US trade group the American Petroleum Institute reported on Tuesday that crude stockpiles fell a larger-than-expected 5.1 million barrels last week. Analysts polled by Reuters estimated a 3.1 million barrel drop.
"We’re in a holding pattern, there’s lots of expectation," said Harry Tchilinguirian, head of commodity market strategy at BNP Paribas.
"The market is trading on risk appetite, so people will be watching the conference call between Sarkozy and Merkel."
Greek Prime Minister George Papandreou will hold a conference call on Wednesday with French President Nicolas Sarkozy and German Chancellor Angela Merkel. The call is scheduled for 1600 GMT, Papandreou’s office said.
Risk remains
Investors remained nervous about the outlook for oil demand.
The International Energy Agency said on Tuesday that world oil consumption would increase more slowly this year and next than previously expected as the pace of global economic growth eases.
Also contributing to the gloom, Moody’s Investors Service cut its ratings for French banks Credit Agricole and Societe Generale on Wednesday, citing their exposure to Greece.
And highlighting the weakness in the global economy, the number of Britons out of work showed its biggest rise in two years, official data showed on Wednesday.
High pump prices slashed US gasoline consumption and forced cost-conscious motorists off the road this summer, making this driving season the worst for gasoline demand since 2009, MasterCard said on Tuesday.
Christophe Barret, an analyst at Credit Agricole Corporate & Investment Bank, said an imminent end to outages in the North Sea this month, combined with the return of supply from Libya sooner than expected were also pressuring prices.
However a number of factors suggest that oil prices are unlikely to fall much from current levels, BNP Paribas said in a note in which it trimmed its Brent crude price forecast for 2011 to $112 per barrel.
"Admittedly, global oil demand may end up lower than expected in light of further deterioration of the economic outlook," the note said. "Yet, supply-side factors, monetary accommodation and ongoing geopolitical risk caution against a collapse in oil prices." –Additional reporting by Alejandro Barbajosa in Singapore
