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Brent back above $113, cuts losses after China data

People jostle for a pump nozzle at a petrol station during a fuel shortage in Cairo June 26, 2013. REUTERS/Mohamed Abd El Ghany

By Manolo Serapio Jr

SINGAPORE (Reuters) - Brent crude futures rose off session lows on Tuesday after upbeat Chinese data strengthened the outlook for demand from the world's No. 2 oil consumer.

The oil benchmark dropped to a one-week low below $113 a barrel earlier on Tuesday after Russia offered to help put Syria's chemical weapons under international control, calming worries of a potential U.S.-led strike against the country.

China's industrial output rose a forecast-beating 10.4 percent in August from a year ago, while retail sales increased 13.4 percent, government data showed.

Those numbers added to evidence that the Chinese economy may avoid a sharp slowdown after data over the past two days showed exports rose more than predicted in August and inflation remained tame.

"It's a plus for demand outlook for industrial commodities generally and builds on the positive picture we've been seeing out of China for the past couple of months," said Ric Spooner, chief market analyst at CMC Markets.

Brent oil for October delivery was down 42 cents at $113.30 per barrel by 0659 GMT, after touching a session low of $112.61, its weakest since September 2.

The crude benchmark fell 2.1 percent on Monday, its steepest single-day decline since June 20.

U.S. crude, also for delivery next month, dropped as low as $108.20 a barrel, before paring its losses to $108.66, down 86 cents.


But the Chinese data was not enough to take oil prices out of negative territory, with many investors more focused on the developments around Syria.

Brent climbed to six-month peaks above $117 and West Texas Intermediate oil hit a more than two-year high of $112.24 late last month on worries that a possible U.S.-led military strike against Syria may disrupt oil supplies from the Middle East. Now some of that geopolitical risk premium is coming off.

"We're seeing a bit of the premium being erased from oil prices," said Ben Le Brun, market analyst at OptionsXpress in Sydney.

"It's still possible the U.S. could put a military attack on Syria but the chances of that don't appear to be as strong as they were a week ago."

U.S. President Barack Obama said he saw a possible breakthrough in the crisis with Syria after Russia proposed that its ally Damascus hand over its chemical weapons for destruction, which could avert planned U.S. military strikes.

Obama is slated to address the American people on Tuesday night and is due to speak to lawmakers during the day.

But U.S. officials and experts warned that any deal with Syria to hand over its chemical weapons in the middle of a chaotic civil war would be difficult for inspectors to enforce and that destroying them would likely take years.

Still, a non-violent way to resolve the crisis would be the logical option, analysts say, with oil prices expected to spike sharply if the conflict spreads to oil-producing nations in the Middle East such as Iran and Iraq.

"If we remove the Syrian tensions, we'd probably see a Brent price under $110 a barrel, maybe even lower," said Le Brun.

The International Energy Agency is concerned about current high oil prices, but did not see the need for any release of strategic stockpiles as the market is well supplied, the group's head said in Tokyo.

(Reporting by Manolo Serapio Jr.; Editing by Joseph Radford and Michael Perry)