Economic uncertainty, supply glut weigh on oil after Paris attacks

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Brent crude oil prices fell on Monday as worries about the economic impact of Friday's deadly attacks in Paris and a global glut of crude supplies weighed on sentiment, while US crude rose with the stock market.

France carried out air strikes overnight in Syria against Islamic State, which claimed responsibility for the Paris attacks. But fears that geopolitical tensions would threaten global oil supplies were outweighed by the expectation that the Paris attacks would crimp economic activity in Europe, in part by reducing travel on the continent.

"Friday's dreadful events and their aftershocks all threaten economic growth; hence the market is coming lower," PVM Oil Associates analyst Tamas Varga said.Front-month Brent crude fell 86 cents, nearly 2 per cent, to $43.61 a barrel. US futures rose 38 cents to $41.12 a barrel, after earlier falling towards $40, a key milestone for the oil market that once breached could see oil fall further, to lows not seen since 2009.  

The failure to fall below $40 on Monday lead to some technical buying in US crude, traders said, bolstered by stock increases on Wall Street.

The spread between Brent and US crude, at $1.81, narrowed to its lowest level since mid October. Oil prices last week racked up their biggest weekly losses in eight months, pressured by swelling storage of crude on both land and sea.

An OPEC delegate from a Gulf oil-producing nation said he believed that oil prices could gain some support in the medium term from rising tensions, particularly if the international community steps up measures to reduce oil smuggling and hits oil facilities under Islamic State's control in Syria and Iraq.

Many analysts also believe that prices will remain subdued because of abundant stocks of oil and slowing economic growth.

"Our outlook is skewed negative into (the first half of next year). Macro headwinds remain, crude oil inventories are building," Morgan Stanley said.

Oil prices have dropped more than 60 percent since June last year as high production and inventories have coincided with an economic slowdown in Asia, particularly in China but also Japan, which slipped back into recession in the third quarter.

"That both crude oil and combined crude and product stocks are near record levels is a reason for concern," Barclays bank said in a research note.

Baker Hughes data showed the first rise in the U.S. oil rig count in 11 weeks last Friday, while the International Energy Agency said there were a record 3 billion barrels of crude and oil products in tanks worldwide.

The oil in storage is comparable to a month's global oil consumption.