Oil dipped towards $110 a barrel on Friday as the ceasefire in the Gaza Strip held, easing supply concerns, but better-than-expected German business sentiment data failed to ease worries about demand in the eurozone economies.
Brent crude futures were down 22 cents at $110.33 a barrel at 1211 GMT. U.S. crude was down 27 cents against Wednesday's settlement to $87.11. The U.S. market, which was closed on Thursday for the Thanksgiving holiday, will not issue a formal settlement price until Friday.
Analysts and traders said that although it had been a good week for stock markets and improved risk sentiment, the ceasefire in Gaza had limited gains in the oil markets.
"Oil prices will probably be under pressure as long as the ceasefire holds," said Filip Petersson, a commodity strategist at SEB Commodity Research. "The fact that it's still holding quite well is surprising considering how difficult it is to get these different factions working together."
Worries about potential disruptions to oil supplies from the Middle East eased after Israel began pulling back its army from Gaza, with both sides declaring they had won their eight-day battle.
Petersson said there was still some risk premium in the price however, with no real downturn since the ceasefire. This is partly because risk sentiment has improved this week so the two factors have offset each other.
"It's been a week for risk on, we've seen strong gains in stock markets, bond yields have come down in Portugal and Greece, and the dollar has weakened," said Ole Hansen, senior commodity strategist at Saxo Bank.
However, the oil market was still waiting for some definitive indication that demand was picking up, he added.
German business sentiment surprised with a rise in November, breaking a six-month run of declines. The closely-watched Munich-based Ifo think tank said its business climate index, rose to 101.4 in November, beating forecasts.
This was an improvement on Thursday's business surveys which showed the eurozone was on course for the worst quarter since early 2009.
But the IFO news followed the news that German gross domestic product growth had slowed 0.1 percentage points to 0.2 percent in the three months to end-September.
And Ifo economist Klaus Wohlrabe said German growth will slow further in the fourth quarter of this year with the possibility that the economy could even end the year with a contraction.
"The Ifo numbers gave the euro a bit of a leg up but there was little reaction from commodities," said Rob Montefusco, a broker at Sucden Financial in London.
Also affecting investor sentiment were the dimming prospects of a deal on the European Union's long-term budget. A fresh compromise proposal offered concessions to France and Poland but ignored British and German demands for deeper overall spending cuts.
The summit of EU leaders continues today. "If they leave the meeting with absolutely no agreement, that would be bad for market sentiment," Petersson said.
Another relatively quiet trading session was in prospect as some U.S. traders are expected to stay away from the office following the Thanksgiving holiday on Thursday. Hansen said this would likely limit price moves.
"We are going to lack volume today so the question is how much we can do. We should see some support at $110 but it's doubtful we will move above $111.17 unless shots are fired again in Gaza. The question is how much more upside drive there is," he said.