Oil slips to near $109 ahead of Cyprus bailout vote

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Brent crude oil fell on Tuesday, trading near $109 a barrel as uncertainty over a bailout for Cyprus intensified concerns about the euro zone debt crisis, and energy demand if the economic picture darkens.

Cyprus's parliament was set to reject a divisive tax on bank deposits in a vote scheduled for 4 p.m. GMT on Tuesday, pushing the island closer to a debt default and banking collapse.

The proposal announced over the weekend shattered calm in the euro zone and caused global markets and the euro to tumble on Monday.

“The situation in Cyprus, although small, goes to show that the problems in the EU are far from over and it will exacerbate the declining demand within EU, keeping a lid on oil prices if not pushing them down,” said Natixis analyst Abhishek Deshpande in London.

Brent crude for May delivery was down 45 cents at $109.06 a barrel by 11:53 a.m. GMT, holding above a three-month low briefly hit on Monday. U.S. crude for April was up 23 cents at $93.97 a barrel.

Iran also presented an element of risk that could cap losses in oil markets regardless of the outcome of the vote in Cyprus, said Thorbjoern Bak Jensen of Global Risk Management.

Europe and the United States last year imposed tough new sanctions aimed at Iran's oil trade to force Tehran to the negotiating table over its nuclear program.

Insurers have refused to cover Indian refineries that process Iranian crude imports due to Western sanctions in a move that could halt deliveries, raising concerns other Asian buyers may face a similar snag.

That said, China's biggest refiner said on Tuesday it did not expect to have any insurance problems and planned to use more Iranian oil in 2013.

Across the Atlantic, oil prices have been supported by expectations of a stronger economy.

Investors looked ahead to the weekly release of U.S. oil inventories data. A further fall in crude stocks at oil futures delivery hub Cushing, Oklahoma, could strengthen West Texas Intermediate (WTI) prices against Brent.

Brent's premium to WTI for May is about $15 a barrel, down from more than $20 in February.

U.S. commercial crude stockpiles were expected to have risen 2 million barrels last week on low refinery runs, a preliminary Reuters poll of analysts showed on Monday.