LONDON: Oil fell on Monday on deepening concerns over Europe’s sovereign debt crisis and slowing global growth.
Worries that Greece may default on its debts rose after finance ministers of the Group of Seven (G7) industrialized economies pledged a joint response to the slowdown but offered nothing specific to help their economies.
Brent crude oil fell as much as $2.35 per barrel to a low of $110.42 but then recovered some ground to trade around $111.30 by 1235 GMT. U.S. crude slid $2.24 to a low of $85.00 and then moved back up to around $86.30.
Stock markets fell in Asia and Europe and were expected to open sharply lower in the United States.
"Worries over the future of the euro zone and over much slower growth are putting enormous pressure on commodity prices," said Christophe Barret, global head of oil research at Credit Agricole in London.
David Wech, head of research at Vienna-based consultancy JBC Energy, said more financial turmoil and a double-dip recession appeared closer than at any time in three years:
"Relatively poor demand readings from China, the lack of a substantial hurricane impact on the oil industry, and resuming production in Libya are further pressuring outright prices."
Fears of a Greek default rose after senior politicians in German Chancellor Angela Merkel’s center-right coalition started talking openly about it.
Greece on Sunday slapped a new tax on real estate to help plug a 2011 budget hole, please international lenders and secure a key new loan tranche as concerns mounted in Europe over its euro zone membership.
Vague pledges and a lack of action by Group of Seven industrialized nations underscored differences between Europe and the United States and a lack of room to maneuver in the face of the worst loss of confidence since the credit crisis.
Europe’s woes hit shares in French banks especially hard, with Societe Generale, BNP Paribas and Credit Agricole all shedding 10 percent.
Fears over French bank funding rose after a source told Reuters on Saturday that France’s top lenders were bracing for a likely credit rating downgrade from Moody’s.
OPEC cuts forecast
The Organization of the Petroleum Exporting Countries cut its forecast for global oil demand growth next year because of a worsening economic outlook and said a disappointing US economic performance could further weigh on fuel use.
OPEC said in a report world oil demand would rise 1.06 million barrels per day (bpd) in 2011, 150,000 bpd less than expected last month. The growth estimate for next year was lowered by 40,000 bpd to 1.27 million bpd.
Investors were also looking at data showing China’s implied oil demand in August slipped to its lowest rate this year, as maintenance and accidents cut into refinery production.
Fuel consumption in the world’s No.2 user has been losing steam since May, with growth easing off the double-digits seen since last year because of higher crude costs that have squeezed refining margins and as Beijing’s credit tightening moves cut into fuel spending.
Still, on a year-on-year basis, China’s oil use expanded 7.8 percent, Reuters calculations based on preliminary government data showed on Saturday.
Concern over damage to US Gulf oil infrastructure eased after Tropical Storm Nate made landfall in central eastern Mexico, with no other major weather disturbances expected to affect the hydrocarbon-rich region in the short term.
Nate weakened to a tropical depression on Sunday as it moved further inland, after cutting Mexican oil production by 178,800 barrels a day as of Friday. Mexico’s Dos Bocas port re-opened to shipping on Sunday, but the crude-exporting hub of Cayo Arcas remained closed.
Oil markets were also eyeing production and exports of Libyan crude following the country’s power transition. Libyan oil firm Arabian Gulf Oil Company said on Monday it restarted production at the eastern oilfield of Sarir in an early sign the industry is coming back to life. –Additional reporting by Alejandro Barbajosa in Singapore
