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Brent crude hovers at $107, Spain debt woes weigh


Investors keep eye on Spain's troubled banks; Iran-West standoff ignites fears of supply disruption; No indication sanctions on Iran will be lifted

May 29, 2012 12:19 by

Brent crude steadied at around $107 per barrel on Tuesday as investors weighed potential Middle East supply disruptions against a deepening debt crisis in the euro zone that is clouding the outlook for global fuel demand.

Spain’s plan to use public debt to revive one of its troubled banks has raised worries that it could recapitalise other weak lenders at a time when borrowing costs are already surging.

“Markets are concerned because of the government’s decision to bail out Bankia SA. This raises questions over Spain’s ability to service it own debt,” said Michael Creed, an economist at National Australia Bank.

“The focus has never been just about Greece, but on countries like Spain and the risks of a contagion, and now with bond yields at dangerously high levels we are going to see markets on edge again.”

Brent crude for July delivery firmed 3 cents to $107.14 per barrel by 0507 GMT, after hitting a high of $108.04 in the previous session.

U.S. crude oil futures gained 37 cents to $91.23.

Supporting crude prices is the threat of war breaking out in the Middle East and disrupting global oil supplies. Tension between major oil producer Iran and the West remains high after inconclusive discussions last week on Iran’s nuclear programme.

Iranian officials have declined to grant access to a complex at the centre of Western suspicion that Iran is developing nuclear weapons capability, despite its repeated denials of any such ambition.

The International Atomic Energy Agency said last week satellite images showed “extensive activities” at Parchin.

“Iran is back on the radar. We are not going to see any move to lift sanctions any time soon, geo-political risk will continue to be the underlying support for prices,” Creed said.

Six world powers failed to persuade Iran last week to halt its most sensitive nuclear work, but they will meet again in Moscow next month to try to end a stand-off that has raised fears of a war that could threaten global oil supplies.

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