Brent crude held steady above $114 today, after gaining sharply a day earlier, as investors weighed firm seasonal demand and the prospect of a supply disruption from Iran against concerns over Italy's sovereign debt risk.
Brent crude gained 14 cents a barrel to $114.70 earlier, after settling $2.59 higher yesterday at $114.56, its highest in more than seven weeks. US crude traded 21 cents higher at $95.73 a barrel, after rising to as high as $95.87.
Italy overtook Greece as the prime threat to the stability of the euro zone after surging bond yields threatened to stifle the debt-ridden country's fund raising ability. Borrowing costs for the euro zone's third-largest economy rose to their highest since 1997, widely seen as unsustainable for its debt.
"The news on Italy is affecting sentiment, but prices will be supported by seasonally strong demand due to the cold winters in China and Europe," said Ken Hasegawa, commodity derivatives manager at Newedge Brokerage in Tokyo.
"Iran is the wild card. If there are sanctions on exports, that will change the situation dramatically," he added.
Iran's dispute with the West intensified ahead of a report from the UN's International Atomic Energy Agency that is expected to show Iran's nuclear program is being geared toward making weapons.
On the demand side, China's top refineries plan to raise their crude oil throughput in November to the highest in a year, as state oil firms rev up operations amid domestic diesel shortages and the restart of a key plant after maintenance.
Market participants will be eyeing Chinese inflation data due out on Wednesday to assess the chance of policy easing in the world's second-biggest oil consumer.
China's annual inflation is expected to ease to 5.5 per cent in October, the third straight month of decline from a three-year high of 6.5 per cent in July, as food price rises cool.
The focus on Italy comes just as the euro zone crisis looked set to stabilise, with Greece working to put in place a new government and push through a bailout agreement.
"While the prospect of a unity government is a positive for Greece, the market has become focused on the potentially much larger problem of Italian debt markets, now that yields have reached new highs," JP Morgan said in a research note.
Reuters
