Oil slips towards $111, as supply outweighs Mideast

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Oil slipped towards $111 a barrel on Tuesday as ample supplies outweighed worries over fighting between Israel and Palestinians in the Middle East.

Concern over the well-being of Europe's economy also pressured oil and other commodities after ratings agency Moody's stripped France of its prized triple-A badge due to an uncertain fiscal and economic outlook.

Brent crude was down 33 cents to $111.37 per barrel by 1313 GMT. U.S. crude fell 43 cents to $88.85.

"Oil had a good run up yesterday on events in the Middle East and it's pulling back a bit now in the light of bearish factors," said Christopher Bellew, a broker at Jefferies Bache. "The market is well supplied."

Investors are waiting to see if fighting subsides as world pressure intensify for a ceasefire in the Gaza strip. U.S. Secretary of State Hillary Clinton headed to the region with a message that escalation of the week-long conflict was in nobody's interest.

Some 110 Palestinians have died in a week of fighting, the majority of them civilians, including 27 children. Three Israelis died last week.

A peaceful outcome would see oil easing.

Jefferies Bache analysts estimate oil has a $2.50 to $3 per barrel premium due to the Israel-Gaza conflict.

"As far as the geopolitical issue is concerned, we feel that odds tilt in favour of some type of ceasefire or truce that could quickly force as much as $1-$.50 of security premium out of the market," they said in a research note.

Oil's downside was checked by escalating violence in the Middle East and as investors grew more hopeful that a U.S. budget crisis will be averted. Brent crude rose 2.5 percent on Monday, to its highest since mid-October.

Global stock markets and commodities drew support from expectations that U.S. lawmakers will reach a deal to avert $600 billion in tax increases and spending cuts due to start in January - the "fiscal cliff" that threatens to send the U.S. economy back into recession.

Oil's downside was checked by promising data from the United States, the world's top oil consumer.

U.S. home resales rose in October and a gauge of homebuilder sentiment climbed to a six-year high in November, signs of surprising vigour in the country's still-struggling housing market.

Traders are now eyeing U.S. oil inventory data. A Reuters poll of analysts showed U.S. crude oil stockpiles were expected to have risen by 900,000 barrels in the week to Nov. 16. (additional reporting by Jessica Jaganathan in Singapore; editing by James Jukwey)



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