LONDON — OIL hovered below $111 per barrel on Thursday, as concerns over supply eased after a cease-fire took effect in the Gaza Strip, but uncertainty over its success and a recovery in Chinese manufacturing offered support.
Israel and the Islamist Hamas movement agreed to an Egyptian-sponsored ceasefire late on Wednesday to halt the eight-day conflict around Gaza, limiting oil price gains.
Although Israel is not an oil exporter, concern that oil-producing nations in the Gulf could become involved in the conflict around Gaza has led to fears of supply disruption.
"I think it will last — Brent should fall on that — but it seems as if the market is pretty sceptical," said Thorbjorn Bak Jensen, an analyst at A/S Global Risk Management.
Brent crude futures fell 27 cents to $110.59 a barrel by 3.25pm GMT, after earlier rising to a high of $111.17. US crude was down 15 cents at $87.23 a barrel.
Trading volumes were thin as US financial markets were closed for Thanksgiving. The holiday temporarily deflected attention from talks on the US "fiscal cliff" — $600bn worth of tax increases and spending cuts set to begin in 2013.
Investors fear the measures could derail the US economic recovery, and the focus is likely to return to the talks after the holidays.
"Quiet Thanksgiving day... keeping one eye on the Middle East, and the other on the US fiscal cliff," said Tony Machacek, a broker at Jefferies Bache in London.
Boosting hopes for higher global economic growth and demand for oil, China’s manufacturing sector saw expansion accelerate in November for the first time in 13 months, according to a factory survey.
But analysts expected the pace of recovery to be modest in the fourth quarter.
"I’m surprised Brent is so high," said Tony Nunan, a risk manager at Mitsubishi Corp. "There are a lot of predictions that all the weakness in China will eventually get sorted as the new leadership takes over, but it seems like they’re not in a huge hurry to over-stimulate."
The outlook for Europe in contrast was far bleaker, with business surveys showing on Thursday the euro zone economy on course for the worst quarter since the dark days of early 2009.
But balancing out the bad news, the US, the world’s top oil consumer, reported positive economic data on Wednesday.
Manufacturing grew in November at its quickest pace in five months, with a rise in domestic demand hinting that factories could provide a boost to growth in the fourth quarter.
"Yes, there is bad data out of Europe, ... but Europe is basically priced in. The market is increasingly optimistic just looking at how equities are performing, good news out of China, it’s all very constructive," said Seth Kleinman, global head of energy strategy at Citi.