Oil slips but still above $100 on Egypt

LONDON: Oil edged down on Tuesday, but remained above $100 a barrel as the market assessed the risk of Egypt's social unrest spreading to neighbouring OPEC members.

Analysts and traders agreed the uprising against the Egyptian government was unlikely to disrupt tanker movement and oil flows along the strategic Suez canal and Sumed pipeline, but said that the restive mood in the region would support prices.

"The dangers of possible insecurity pushed it to break $101, but that has been pretty much discounted now, it's been priced in. For another push, the market is looking for an indication that demand is growing," said Simon Wardell, oil analyst at Global Insight.

"In the absence of another sign of demand growth or a weaker dollar, you could probably expect the price to come down a little. Then seasonality in demand will kick in and there could be another push for the $100 range in the second quarter," he said.

China's factory growth didn't inspire confidence after slowing to a five-month low, a signal that demand may not rise quickly in the world's second-largest oil user.

Brent crude futures traded 53 cents down at $100.48 a barrel and U.S. crude oil futures fell $1.01 to $91.18 per barrel as of 1350 GMT with the spread between to two grade being firmly above $9 per barrel.

The market expects the U.S. Energy Department to show high crude inventories on Wednesday, which analysts said could further pressure U.S. crude futures.

According to a Reuters poll of analysts, U.S. crude inventories likely rose 2.8 million barrels last week on higher imports, while colder weather drew down distillate stockpiles by 1.2 million barrels.

THE EGYPT "WHAT-IF" The International Energy Agency said on! Tuesday the oil market does not face any emergency, but called on OPEC to remain "flexible" in the event that contagion does spread and shortages begin to show.

The top oil official for OPEC member Libya told Reuters OPEC does not need to meet to discuss oil policy in February because the market is well supplied and prices of $100 are justified

Egypt's anti-government protesters, sensing victory after President Hosni Mubarak agreed to discuss sweeping political reforms, rallied support for what they hope will be a million-strong march for democracy on Tuesday.

"The market moves on the what-if factor, so you can't rule it out," said Toni Machacek, an oil broker at Bache Commodities.

"But if there is a significant reduction of tensions in Egypt we will settle back to more normal levels and go below $100 to the upper 90-dollar range we had for the first few weeks in the year."

The unrest in Egypt comes on the heels of an uprising in Tunisia that toppled the country's president and is keeping global investors and traders on the lookout for any signs of copycat unrest in neighbouring OPEC producer Algeria.

Mubarak's newly appointed vice-president began talks with opposition figures and the army declared the protesters' demands "legitimate" and said it would hold its fire.

"While short-term risks remain skewed to the upside, we think that the current price strength is likely to ease once the situation in Egypt normalises. Spare OPEC production capacity remains ample, which should prevent a rapid tightening of the market balance," said analysts from Credit Suisse.

The Organization of the Petroleum Exporting Countries says it holds about 6 million barrels per day (bpd) of idle production capacity -- equal to 7 percent of world d! emand -- that it could tap to fill any shortage. Most of this capacity is held by Saudi Arabia.