Oil below $105 as Middle East risk premium fades

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Brent crude oil fell slightly on Tuesday after the risk premium created by an Israeli air strike on Syria began to fade.

The benchmark hit its highest in nearly a month above $105 in the previous session on fears of supply disruption after the Israeli air strikes on Syria close to Damascus.

Israel played down the air strikes, saying the raids were not aimed at influencing its neighbour's civil war, but only at stopping Iranian missiles from reaching Lebanese Hezbollah militants. "There are no winds of war," Yair Golan, the general commanding Israeli forces on the Syrian and Lebanese fronts, told reporters.

Brent crude dropped 34 cents to $105.12 a barrel by 1035 GMT, after settling up at $105.46 on Monday, its highest finish since April 10.

Brent has rebounded more than $6 a barrel since falling below $99 last Wednesday. U.S. oil fell 46 cents to $95.70, after ending 55 cents higher on Monday.

Analysts expect crude oil could rise further on renewed optimism about the health of the global economy, thanks in part to supportive measures from central banks.

The Reserve Bank of Australia cut its cash rate by 25 basis points to a record low of 2.75 percent.

On Monday European Central Bank (ECB) president Mario Draghi said that the ECB would cut rates again if needed, including pushing its key deposit rate into negative territory.

"There's a risk premium pull-back today, but more generally there's a glow of comfort for investors, with central banks in Europe and the United States more supportive across the board," said Bjarne Schieldrop, chief commodities analyst at SEB in Oslo.

Positive data also helped to put a floor under prices, with German industrial orders rising again in March, confounding expectations for a drop and helping to brighten a rather gloomy demand outlook.

CHINA FOCUS

Attention focused again on China, the world's second-largest economy, ahead of preliminary April trade data due on Wednesday.

China's crude oil imports last month were expected to have held near March levels, which were 2.1 percent lower than a year earlier.

Chinese inflation data on Thursday and money supply and loan growth figures expected from Friday will also be watched.

Expectations of a further build in U.S. commercial crude oil stocks, after hitting a record high, dragged on prices.

A preliminary Reuters poll, taken ahead of weekly inventory reports from the American Petroleum Institute (API) and the U.S. Energy Department's Energy Information Administration (EIA), forecast on average that crude stocks increased by 1.8 million barrels in the week ended May 3.

Prices may rise in the second half of 2013, Morgan Stanley said in a research note. The bank said that the global oil balance looked much tighter this summer, with Brent likely to trade up to $110 to $115 in the second half.

In the week to April 30, hedge funds and other large speculators increased bets on higher Brent prices, upping net long positions by 9,614 contracts to 108,741, data from the IntercontinentalExchange (ICE) show. (Editing by Louise Heavens and David Goodman)



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