Brent rises above $108

Brent crude rose to above $108 a barrel on Tuesday as China's manufacturing activity expanded slightly, lifting hopes of higher oil demand, and as rising tensions between Iran and the West created supply disruption fears.

Crude had been one of the best performers among commodities in 2011, with Brent posting an annual gain of 13% to a record average of nearly $111 a barrel as unrest in North Africa and the Middle East disrupted supply.  Brent crude climbed $1.12 to $108.50 a barrel on the first day of trading for 2012. US crude futures rose $1.43 to $100.26 a barrel.

" Over the next few months, it will be a balance of economic issues in Europe and the US versus bullish geopolitical factors and the reality of economic growth in major Asian economies," Victor Shum, an oil consultant at Purvin & Gertz, said.  " Oil in 2012 will see a continuing strengthening trend as there are more upside risks."

In China, activity at big manufacturers expanded slightly in December, temporarily putting to rest fears that the world's second largest economy could slow sharply in the wake of the euro zone crisis and hurt oil demand.  " This expansion in manufacturing data has helped change sentiment in the market on the first day of trading," Shum said.  The Chinese data added to a picture of subdued global manufacturing activity going into 2012, with the euro zone's industrial sector suffering its fifth straight month of declines in December.

Iran has flexed its military muscle as the West moved a step closer toward tougher sanctions over its nuclear program, ratcheting up concerns of a supply cut from Opec's second largest producer.  President Barack Obama signed a law on Saturday imposing tougher financial sanctions that could for the first time hurt Tehran's oil exports, while the European Union is due to consider similar steps soon.  In retaliation, Iran test-fired what it described as two long-range missiles at the end of a 10-day naval exercise in the Gulf. Tehran has warned it could shut the Strait of Hormuz, through which 40% of world oil is shipped, if sanctions were imposed on its crude exports.  " It's mostly saber-rattling," Shum said. " Whether Iran would actually blockade the Straits of Hormuz remains to be seen."   Shum said a blockage will not be sustainable as Iran would be hurting itself economically.  " The West will commit to maintain oil flows through the Straits of Hormuz," he said.

In Europe, France's Nicolas Sarkozy will meet German Chancellor Angela Merkel in Berlin on 9 January for talks that are likely to centre on new rules to enforce budget discipline across the European Union.

Source: Upstreamonline.com 05:05 GMT 03 January 2012