SINGAPORE: Brent hovered above $104 per barrel on Thursday, with investors anticipating more US stimulus measures to support growth and on fears that tensions in the Middle East could escalate, causing supply concerns. 

Data showing the biggest drop in more than a year in US single-family home sales in June, reflecting a sluggish recovery for the housing market, reinforced expectations that the Federal Reserve may act to adopt more stimulus measures, known as quantitative easing, to support the economy.

Geopolitical risks also remained a focus amid fears Syria could resort to chemical weapons in its efforts to suppress the 16-month revolt against President Bashar al-Assad.  Brent crude had fallen 10 cents to $104.28 per barrel by 0618 GMT, while US crude was down 30 cents at $88.67.

“People are looking towards the possibility of quantitative easing by the US as a weaker dollar will be supportive of commodity prices,” said Ric Spooner, chief market analyst at CMC Markets in Sydney.

“The risk is to the downside and I think we will need some sort of catalyst to change the direction of Brent prices, be it either the current demand or supply outlook.”

Prices were also supported after European Central Bank Governing Council member Ewald Nowotny said he could see grounds for giving the euro zone bailout fund a banking license that would increase its crisis-fighting firepower.

But ECB President Mario Draghi poured cold water on the idea, while legal problems could also prevent the central bank from allowing its European Stability Mechanism rescue fund to tap liquidity operations.

DOWNBEAT GLOBAL OUTLOOK

Investors remained worried about fuel demand after a series of weak economic data.

South Korea's economic growth slowed more than expected in the second quarter and barely averted a decline, mainly thanks to a tumble in imports, deepening worries about the prolonged crisis in Europe, and slowing growth elsewhere.

German business sentiment dropped in July for a third straight month to the lowest level in more than two years, while British economic output shrank more than expected in the second quarter.

But borrowing costs in Spain, which is facing snowballing regional debts and a banking sector struggling to clean up bad loans, retreated slightly on Wednesday.

In China, nearly a quarter of companies in the country's export hub of Guangdong province lost money in the first five months of this year on faltering demand, rising costs and financing shortfalls, the official Xinhua News Agency reported.

US OIL INVENTORIES

US crude oil inventories rose unexpectedly by 2.72 million barrels last week on sharply higher imports, defying forecasts for a modest drawdown of 700,000 barrels, data from the US Energy Information Administration showed.

Crude imports rose 695,000 barrels per day to 9.59 million bpd, the highest since July 2011. Crude stocks at Cushing, Oklahoma delivery point rose 203,000 barrels to 46.49 million barrels.

Adding to geopolitical tensions, Western powers have been calling for Syrian President Bashar al-Assad to be removed from power in the wake of a revolt against his regime, but they now fear he will fight to the end, raising the risk of sectarian warfare spreading across one of the world's most volatile regions.

Syria confirmed on Monday that it had chemical and biological weapons and said it would use them against external threats, prompting warnings from Washington and Moscow against using the arsenal.

“Prices rallied more than half a per cent overnight on growing worries about the implications of the conflict in Syria,” ANZ analysts wrote in a note on Thursday.

“We may see some of the risk premium in oil rebuild.”