Oil prices up, focus on Spanish bond sale

Prices capped amid fears that anaemic demand could reignite jitters over the euro zone debt crisis

Oil edged higher in Asian trade today but prices were capped ahead of a Spanish government bond auction amid fears anaemic demand could reignite jitters over the euro zone debt crisis.

Prices were supported by renewed concerns over West Asia 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 euro zone 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.