Oil falls on global growth worries, debt crisis

LONDON - U.S. crude oil fell $2 and Brent crude lost more than $1 per barrel on Monday on worries over the prospects for global economic growth as debt crises dominated headlines on both sides of the Atlantic.

By (Reuters)

Published: Mon 21 Nov 2011, 6:15 PM

Last updated: Tue 7 Apr 2015, 5:17 AM

A U.S. congressional committee looked set to fail in a bid to cut at least $1.2 trillion from the U.S. deficit over the next 10 years. While the group had until midnight on Wednesday to bridge differences over taxes and spending, comments from congressional aides suggested it would admit defeat on Monday.

In Europe, German bonds rose and peripheral euro zone debt came under renewed pressure as investors fled risky assets and headed for safer havens.

U.S. crude oil futures for January delivery on the New York Mercantile Exchange tumbled $2.06 to a low of $95.61 a barrel before recovering to around $96.20 by 1150 GMT.

Brent crude lost $1.09 to a low of $106.47 before rallying a little to trade around $106.90 by 1150 GMT.

“Concerns about U.S. debt have added to risk aversion,” said Eugen Weinberg, head of global commodities research at Commerzbank in Frankfurt. “The euro zone crisis is ongoing with no sign of being resolved and equities are down very sharply.”

European stocks dropped to a six-week low early on Monday, extending losses after Moody’s said a rise in interest rates on French government debt and weaker economic growth prospects could be negative for France’s credit rating.

Investors concerned over slowing euro zone growth and its two-year-old debt crisis have fled to dollar holdings in recent weeks but analysts expect the U.S. currency to suffer too if Congress fails to agree cuts to government spending.

Brent’s decline was limited by concern that tension over Iran’s nuclear programme, and clashes in Egypt and Syria, may disrupt Middle Eastern output as demand for fuel rises ahead of the Northern Hemisphere winter.

Geopolitical tension

“WTI remains a more actively traded contract than Brent,” said James Zhang, an analyst with Standard Bank in London. “When the oil market is swung by macro-events, the volatility in WTI tends to be higher.”

In comments broadcast on Sunday, the energy minister of OPEC president Iran told Al Jazeera television his country could use oil as a political tool in the event of any future conflict over its nuclear programme.

The United States plans to sanction Iran’s petrochemical industry, sources familiar with the matter said last week, seeking to raise pressure on Tehran after fresh allegations it may be pursuing nuclear weapons.

Syrian President Bashar al-Assad vowed on Sunday to continue a crackdown against protests demanding an end to more than four decades of rule by his family, a move likely to step up international pressure on the oil-producing nation and that may result in sanctions from other Arab states.

In Egypt, at least 12 people were killed in clashes between security forces and crowds protesting against the ruling military council in some of the worst violence since the overthrow of Hosni Mubarak.

The focus on Middle East production will continue until next month, when the Organization of the Petroleum Exporting Countries (OPEC) holds a Dec. 14 meeting. Its last meeting ended in acrimony when Iran and Venezuela and others blocked a Saudi Arabia-led push for an OPEC-wide output increase.

A bearish target at $106.10 a barrel is unchanged for Brent as there will be no strong support above this level, according to Reuters technical analyst Wang Tao.

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