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SINGAPORE: Oil edged higher in Asian trade Thursday but prices were capped ahead of a Spanish government bond auction amid fears anaemic demand could reignite jitters over the eurozone debt crisis.
Prices were supported by renewed concerns over Middle East supply owing to the standoff between key producer Iran and the West over Tehran's nuclear programme.
New York's main contract, West Texas Intermediate crude for delivery in May was up four cents to $102.71 per barrel while Brent North Sea crude for June gained 38 cents to $118.35 in morning trade.
“The situation with Iran is still a supporting factor because it is still not resolved after the talks,” said Ken Hasegawa, energy desk manager at Newedge brokerage in Japan.
Talks between Iran and the West at the weekend were described as “positive”by both parties but international leaders have been quick to insist a great
deal was expected of the Islamic republic at the next meeting in Baghdad on May
23.
However, eyes are on Europe where investors were keenly awaiting the results of Spain's benchmark 10-year government bond auction.
“With the highest unemployment rate in (the) eurozone and returning into recession this year, Spain is in danger of entering a debt/recession spiral whilst it seeks to reassure on its commitment to fiscal austerity,” DBS Bank said in a commentary.
Justin Harper, market strategist at IG Markets Singapore, said he expects “some nail-biting moments” ahead of the Spanish auction. He said the results will be a “litmus test” of investor confidence on Spain's ability to service its debts.
“There are fears the eurozone could become the new Japan, suffering decades of virtually no growth and tumbling asset prices, if it survives the current crisis,” Harper said.
Analysts fear weak interest could lead Spain to follow Greece, Ireland and Portugal in asking for a bailout.
Meanwhile, credit agency firm Fitch Ratings warned that oil prices could pressure sovereign ratings of major economies and firms if they see a further spike.
“The biggest risk to ratings is of a shock oil price rise that leads to sustained higher prices,” it said in a commentary.
“The US economy would be damaged in the short and medium terms if oil prices were to remain higher than $150 per barrel. The greatest impact would be felt on some global corporations and transportation-based infrastructure issuers.”
