LONDON: Brent crude futures fell by more than $2 a barrel on Monday to just above $116 as worries about the widening euro zone debt crisis and a drop in Chinese crude imports rekindled concerns about a demand slowdown.
After Friday’s dismal US employment data, investors remain on edge about a meeting of top European officials on fears the crisis could spread to Italy, the region’s third-largest economy.
By 1320 GMT, Brent crude futures for August fell by $2.23 to $116.10 a barrel, while US crude benchmark West Texas Intermediate (WTI) was $1.15 lower at $95.05 a barrel by the same time.
"Concerns about Europe keep getting ratcheted up and demand expectations lower and China’s inflation and worry about slowing growth add to worries about demand in the fourth quarter," said Phil Flynn, analyst at PFGBest Research in Chicago.
CA-CIB analyst Christophe Barret added that in light of the impact of high oil prices on growth, "the very high oil prices are the best cure to very high oil prices."
European Council President Herman Van Rompuy over the weekend called an emergency meeting for Monday morning of top officials dealing with the euro zone debt crisis, reflecting concern that the crisis could spread to Italy.
"Risk aversion is back after the disappointing US jobs data and concerns about the debt situation in Italy," Commerzbank analyst Carsten Fritsch told Reuters. "This is putting oil prices under pressure, and it seems Brent in particular is vulnerable to further losses."
Fritsch said Europe’s debt crisis would continue to weigh on the euro. The euro fell by more than 1.17 percent against the dollar. A stronger greenback can hurt dollar-denominated commodities such as oil by rendering them more expensive for holders of other currencies.
Investor appetite also remained subdued after China’s crude imports tumbled by 11.5 percent in June from a year earlier to 4.8 million barrels per day (bpd), their lowest in eight months.
"The fall in oil prices this morning is a result of fears that China’s commodity-driven inflation is yet to peak, coupled with worries that Europe’s sovereign debt crisis may be spreading," said Christin Tuxen, an analyst with Danske Bank in Copenhagen.
Reduced loadings of North Sea crude were supportive for Brent on Friday, while front-month WTI plunged by almost $2.50.
WTI’s discount to Brent hovered around $21 on Monday after it widened to as much as $22.45 in the previous session, the highest since the intraday record of $23.34 on June 15, on news that output from the North Sea Forties oil stream will slip to a two-year low in August.
Fritsch said the premium remained unsustainable and should narrow. "There is an anomaly that needs to correct."
IEA trims volume of planned release
Last week’s gains in Brent pushed prices well above the level prior to the release of global emergency stockpiles coordinated by the West’s energy watchdog, the International Energy Agency as traders bet the extra 60 million barrels of oil would be insufficient to stop market tightening later this year.
The IEA said on Monday it will release slightly less oil and oil products than initially expected under its emergency release plan.
Analysts expect OPEC’s monthly report due on Tuesday will provide insight into oil stock estimates after the IEA’s move.
Iran’s caretaker oil minister said on Saturday OPEC was opposed to any increase in output ceilings in the absence of "well studied justifications".
Saudi Arabia’s offer for additional crude in August met scant interest from refiners across northeast Asia, who are just taking their full contractual volumes.
Limited demand for extra barrels from Asia, the world’s fastest-growing market, would leave the Saudis with few options to find homes for additional cargoes. –Additional reporting by Rober Gibbons in New York and Alejandro Barbajosa in Singapore
