* U.S. oil falls to 7-week trough; Brent slips to 1-month low
* Deadlock in Italian weekend polls revives euro zone worries
* POLL-U.S. crude stocks seen up for sixth straight week
* Coming Up: Fed chief testimony; 1500 GMT (Adds comments, technicals, Iran talks, updates prices)
By Manolo Serapio Jr and Manash Goswami
SINGAPORE, Feb 26 (Reuters) – Brent crude futures fell by more than a dollar to one-month lows below $114 a barrel on Tuesday, hit by worries over demand growth as a potential political vacuum in Italy revived fears over instability in the debt-plagued euro zone.
The uncertainty in Rome, along with soft manufacturing data from China and concerns the United States may rein in its economic stimulus, are clouding the global economic outlook and could erode oil’s modest price gains so far this year. Investors exited riskier assets because of the uncertainty, pushing down Asian shares and base metals along with oil, while gold rose.
Brent crude hit a session low of $113.30 a barrel, its weakest since Jan. 29, and was down 61 cents at $113.83 by 0403 GMT. U.S. oil slipped 54 cents to $92.57, after touching a low of $91.92 earlier, a level not seen since Jan. 4.
“Market sentiment has certainly turned bearish. Uncertainty in Italy is on top of everyone’s mind, plus we had weak China numbers,” said Victor Shum, an oil analyst at IHS Purvin & Gertz. “So we are seeing selling in oil. Directionally it is correct because the market was overbought.”
Italy’s election results confirmed market fears that the polls would not produce a government strong enough to carry out effective reforms, reviving memories still fresh of the financial crisis that took the 17-member currency block to the brink of collapse in 2011.
Italy’s centre-left coalition will win a majority in the lower house of parliament but the upper house will be deadlocked, the Interior Ministry said after almost all votes were counted following weekend elections.
“There’s a possibility that the Italians might be heading back to the polls,” said Ben Le Brun, market analyst at OptionsXpress in Sydney. “In the short term, investors and traders don’t like the uncertainty.”
Le Brun said he saw support for Brent oil at $110 a barrel and for U.S. crude at $90. Shum expects U.S. oil to trade between $90 and $95 a barrel over the next week and Brent’s premium to the U.S. benchmark capped at $20.
Brent is up a modest 2.4 percent so far this year, with prices failing to build on a rally to nine-month highs in early February, hurt by signs the global economy remains fragile.
Data on Monday from No. 2 oil consumer China showed manufacturing activity slowed this month from two-year highs in January.
There was also growing concern among investors that the U.S. Federal Reserve could ease up on its bond-buying stimulus programme sooner than expected, and all eyes will be on Fed Chairman Ben Bernanke’s congressional testimony later in the day for clues to the Fed’s plans. Markets suffered a two-day rout last week on fears the Fed could soon end the stimulus.
Investors remain worried about a looming spending cut in top oil consumer the United States, where $85 billion will be slashed from the budget effective on Friday.
“There’s a belief in the market that there’s going to be some resolution between now and March 1, but there’s still a clear and present danger from the fiscal drag to the U.S. economy,” said Le Brun.
U.S. crude oil stockpiles are forecast to have climbed for the sixth straight week in the seven days to Friday as imports and production both rose, an initial Reuters poll of analysts showed. The survey ahead of weekly reports forecast crude stocks rose by 2.3 million barrels.
Stemming further losses in oil are lingering concerns of geopolitical tension worsening in the Middle East. Major powers start talks with Iran to force the Islamic Republic to halt a controversial nuclear programme.
Major powers will offer Iran some sanctions relief during talks in Almaty, Kazakhstan, this week if Tehran agrees to curb its nuclear programme, a U.S. official said on Monday.
“There are several counterbalancing factors that are supporting prices,” Shum said. “Iran is one of them.” (Reporting by Manolo Serapio Jr.; Editing by Clarence Fernandez)