Brent slips to $116 on Greece risk, spread trade

Brent crude futures fell to near $116 a barrel on Wednesday, as uncertainty over Greece's ability to resolve its debt problems weighed on sentiment and traders narrowed the benchmark's premium to U.S. crude.

The risk of Europe's debt crisis dragging the region into a recession that could crimp oil demand continued to weigh on risk assets.

Greek political parties will try yet again on Wednesday to strike a reform deal in return for a new international rescue to avoid a chaotic default.

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"There is little doubt that should Greece come to an agreement with private debt holders and agree to tough austerity measures this would be viewed favorably in risk asset markets," said Ben Le Brun, market analyst with OptionXpress in Sydney.

Front-month Brent fell 21 cents to $116.02 a barrel by 0301 GMT, snapping seven straight days of gains.

U.S. March crude rose 43 cents to $98.84 a barrel, buoyed by an unplanned outage at a Canadian oil sands plant.

BRENT/WTI EASES

Brent's premium to U.S. crude oil narrowed towards $17 a barrel, after the spread had widened to more than $20 per barrel on Tuesday, its highest since October.

Traders bought the spread, narrowing Brent's premium, after news that a Canadian oil sands plant could be closed for a few weeks and bullish U.S. crude stocks data boosted U.S. crude.

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The American Petroleum Institute (API) reported a surprise drawdown of 4.5 million barrels in the week to February 3, defying a consensus forecast for an increase of 2.4 million barrels.

"The market was expecting a big build, with many refineries expected to go into turnaround in February and March, so the numbers are a boost for prices," said Tony Nunan, a risk manager with Mitsubishi Corp in Tokyo.

Goldman Sachs analysts said they were closing their short March 2012 WTI-Brent position, citing the recent widening of the spread to levels not seen since November.

Brent will consolidate in a range of $115.29 to $116.79 for one or two trading sessions before rising towards $118.65, while U.S. oil will edge up to $99.59 per barrel, as it has broken a resistance at $98.61, said Reuters market analyst Wang Tao.

SUPPLY RISKS

The prospect of supply disruptions has put a floor under prices, with Iran's parliament saying on Tuesday it was ready to impose a ban on oil exports to the EU, while clashes in Nigeria are also worrying investors about potential supply problems.

On the demand side, the U.S. government's Energy Information Administration (EIA) boosted its 2012 and 2013 forecasts for global oil demand growth, and said supply would tighten as gains in non-OPEC production lag, adding to support for oil prices.