LONDON — Oil held near $111 a barrel in London on Monday, after earlier rising above $112 in Singapore on signs China’s economic growth was beginning to recover.


Gains were limited by concern about the economic welfare of the US, the world’s top oil consumer.

Activity in China’s manufacturing sector quickened for the first time in 13 months in November, a survey of private factory managers found, adding to evidence of a pickup after seven quarters of slowing growth.

"China’s data has been broadly supportive of risk markets and entirely consistent with recent numbers suggesting overall improvement in growth," CMC Markets chief market analyst Ric Spooner said in Sydney.

Brent futures were off 5c at $111.18 a barrel by 9.52am GMT, after rising 2.3% in November. US crude fell 19c to $88.72 a barrel.

US crude futures are trading at a discount of about $22 a barrel to Brent futures, narrower than the $25.5 discount seen in mid-November.

The gap is expected to remain wide as geopolitical risks will keep Brent elevated although US prices may rise moderately due to an expected pick-up in demand, Credit Suisse analysts said in a report.

China revival

The HSBC purchasing managers index (PMI), which focuses on private export-oriented manufacturers, rose to 50.5 in November, inching above the 50-mark that separates growth from contraction for the first time in 13 months.

Investors will now be awaiting China’s industrial output and trade data later this month for further confirmation of revival in the world’s biggest energy consumer.

Concern about the US’ fiscal deficit and talks on the upcoming fiscal cliff, a $600bn package of tax hikes and spending cuts which may plunge the world’s biggest economy into deep recession, kept oil price gains in check.

"It’s the main downside risk for prices as it could increase risk-aversion, push up the dollar and therefore weigh on commodities prices and also on oil prices," said Carsten Fritsch, oil analyst for the Frankfurt-based Commerzbank.

The package takes effect at the end of the year and President Barack Obama’s administration and congressional leaders are trying to work toward a deficit reduction in the next session of Congress that begins in January.

Investors are also awaiting economic data from the US, specifically on employment, to assess the health of the nation’s labour market.