Brent steady above $111 on China demand, supply worries

Brent crude futures rose on Tuesday, staying above $111 on expectations of steady demand growth after the world's second-largest oil consumer, China, posted an economic expansion that beat forecasts.

The data eased oil investor worries that Europe's debt crisis is forcing China's factories to pare output and reduce energy consumption. The latest numbers give another prop to prices that have hovered around $110 a barrel since the beginning of the year, fuelled by escalating tension in the Middle East over Iran's nuclear programme.

Brent crude rose 46 cents to $111.81 a barrel by 0306 GMT. US crude rose $1.26 a barrel to $99.97. There was no settlement price for the US benchmark because of a holiday in the United States on Monday.

"China's data is encouraging, the numbers have been good across the board and that is supportive of oil," said Ben Le Brun, market analyst at OptionsXpress. "It shows that the fallout from the European crisis has not been as bad as expected."

China's implied oil demand climbed to an all-time high of 9.64 million barrels per day in December, up 0.4 per cent from a year earlier and wound up 2011 with 6.8 per cent growth, calculations based on preliminary government data showed.

The world's top oil exporter, Saudi Arabia, said it can pump more oil at a moment's notice, a day after Iran warned Gulf oil producers not to compensate for any disruption of exports due to international sanctions.

Saudi Oil Minister Ali al-Naimi, told in an interview Riyadh could increase production by about 2 million barrels per day (bpd) "almost immediately."

The comments further stoked already simmering tension in the region as Tehran faces growing isolation over its nuclear programme, with the United States pressuring top consumers from China to Japan to stop buying Iranian oil.

A bearish target at $108.75 per barrel remains unchanged for Brent, while US oil will revisit a Jan. 13 low of $97.70 per barrel, as it could have completed a rebound from this level, Reuters market analyst Wang Tao said.

Market participants remain worried about global demand growth as Europe struggles to tackle the region's debt crisis. The worsening of the region's financial problems may impact other major economies and stifle energy demand.

US rating agency Standard & Poor's cut its credit rating of the euro zone's EFSF rescue fund on Monday. The agency said in a statement the decision was all but inevitable following identical cuts three days earlier to the creditworthiness of France and Austria, two of the fund's guarantors.

Broader markets have so far shrugged off the move, with European shares and the euro recovering on Monday and a debt auction by France drawing firm investor demand.

"Risk markets successfully negotiated their first minor hurdle for the week when, as generally expected, French note auctions revealed no immediate impact from the one-notch rating downgrade by S&P," Ric Spooner, chief market analyst at CMC Markets, said in a report.