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UPDATE 8-Brent edges up after dip into contango amid ample supplies

Anna Louie Sussman
Monday, 4 Nov 2013 | 3:09 PM ET

* Brent prices firm after heavy losses in previous session

* Prompt Brent contract in contango, first time since June

(Updates prices)

NEW YORK, Nov 4 (Reuters) - Brent crude futures rose on Monday, recovering after falling to a four-month low on weaker-than-expected U.S. economic data, as traders bought back short positions to take profits on the early drop.

New orders of non-military capital goods other than aircraft, an indicator of business spending plans, fell 1.3 percent in September, the Commerce Department said.

Brent futures for delivery next month briefly fell below the January contract <LCOc1-LCOc2>, switching to contango for the first time since June, excluding contract expiry days. A contango forward market can indicate ample supplies and is considered more bearish than the more-common backwardation structure.

"We just drilled the market, so a bit of a short-covering rally is in place here," said Bob Yawger, senior director of energy futures at Mizuho Securities in New York.

"It's been a big pullback, so I think a couple of days of consolidation are in order here."

Brent for December rose 32 cents to settle at $106.23 per barrel after hitting a four-month low of $105.13 a barrel earlier in the session. Brent dropped $3 on Friday.

U.S. crude for December gained 1 cent to settle at $94.62 a barrel after posting its own four-month low of $94.06 earlier in the session.

Brent's premium over U.S. crude widened t0 $11.61 from $11.30 at Friday's close.

Traders and analysts said they were expecting a sixth straight build in U.S. crude stockpiles to be announced this week. The front-month U.S. crude contract, which has been in contango for over two weeks, found some technical support on Monday.

Stephen Schork, editor of the Schork Report in Villanova, Pennsylvania, said the market was at a "critical juncture" right now, having taken out a key technical support level of $94.76 for U.S. crude in the most recent session.

"That tends to be a popular support level, and we really seem to be fluctuating right around that number right now."

Commerzbank slashed its 2014 price forecast for Brent by $9 to $106 a barrel, saying the global oil market should remain amply supplied next year.

Bearish sentiment was also reflected by a report from the Intercontinental Exchange that hedge funds and other large speculators had reduced their bets on rising Brent prices for the eighth time in nine weeks in the seven days to Oct. 29.

Fund bets on rising Brent prices have almost halved to 119,451 net long positions, the equivalent on paper of almost 120 million barrels of oil, since hitting a peak of 231,962 net long positions in late August, when Brent was close to $117.

LIBYAN TENSIONS SUPPORT

Tensions in major-exporter Libya provided support for oil as leaders of an autonomy movement in the country's oil-rich east unilaterally declared a regional government on Sunday.

Strikes at ports and oilfields have slashed crude production to about 10 percent of Libya's capacity of 1.25 million barrels per day.

"The inability to follow through and go lower today highlights that the market is turning on developments in Libya," said John Kilduff, partner at Again Capital LLC in New York.

U.S. oil has been pressured by inventory data from the Energy Information Administration pointing to healthy stocks at the Cushing, Oklahoma delivery point for the U.S. futures contract.

(Additional reporting by Alexander Winning and David Sheppard in London and Manash Goswami in Singapore; Editing by Marguerita Choy)