LONDON: Oil prices fell more than $3 per barrel on Tuesday after a decision by Greece to call a referendum over its debt bailout threw the euro zone into crisis and as data showed global economic activity was slowing more quickly than expected.
The Greek move stunned financial markets, sending the dollar up more than 1.8 percent while the euro tumbled. Stock markets and commodities fell sharply.
Investors are afraid Europe will be unable to stop its sovereign debt crisis from spreading, putting other euro zone economies in jeopardy. Bank runs, disorderly default and a Greek exit from the euro no longer look like wild scenarios, some analysts say.
"Risk aversion is back," said Eugen Weinberg, head of commodities research at Commerzbank. "The solution to the euro zone debt crisis that we thought we were celebrating last week no longer seems certain."
ICE Brent December crude futures fell $3.46 to a low of $106.10 before recovering to trade around $106.80 by 1420 GMT. US crude lost $4.02 per barrel to a low of $89.17 before rallying a little to around $90.40.
Tuesday’s rout contrasted with strong gains in October on both contracts. Brent posted a 6.6 percent rise in October, its biggest since April, and after slumping 10.5 percent in September. US crude surged 17.7 percent in October, the biggest percentage gain since May 2009.
Prospects for global growth were dampened by data from several key economies showing manufacturing slowing.
In China, big manufacturers operated at their slowest pace in October since 2009 as the official purchasing managers’ index (PMI) fell to 50.4 in October from 51.2 in September.
The pace of growth in the US manufacturing sector also unexpectedly slowed in October, according to the Institute for Supply Management (ISM), with its index of national factory activity dipping to 50.8 from 51.6 the month before and expectations of 52.0, according to a Reuters poll.
Britain’s economy meanwhile is teetering on the brink of recession despite a solid performance in the third quarter. The UK PMI survey showed manufacturing activity in October fell at its sharpest monthly rate since June 2009.
Oliver Jakob, managing director of energy consultancy Petromatrix in Zug, Switzerland, said the surprise news of the Greek referendum and the lower Chinese PMI data had cast a shadow over all financial markets.
The bankruptcy of brokerage MF Global following bad bets on euro zone debt deepened the gloom. It is the biggest US casualty so far of Europe’s debt crisis and the seventh-largest US bankruptcy by assets.
Reports the collapse of MF Global may have been due to misuse of funds were also sending shivers through markets. The New York Times reported federal regulators had discovered hundreds of millions of dollars in customer money had gone missing from MF Global. Regulators were looking into whether the broker used some of the money to support its own trades, it reported, citing unnamed sources.
"Speculation about funds going missing in MF Global segregated accounts will not help," Jakob said. "The mess in Greece will also not be helped by the liquidity issues resulting from the mess in MF Global," he added.
Investors were looking ahead to this week’s meeting of the US Federal Reserve, which ends on Wednesday, as well as a summit of the Group of 20 nations, and US payroll data on Friday as pointers for the markets.
OPEC oil output fell in October as reduced supplies from Iraq, Nigeria, Saudi Arabia and Angola offset rising Libyan supply, according to a Reuters survey.
The International Energy Agency does not want OPEC to cut output at its December meeting because the IEA expects demand for OPEC oil will grow by half a million barrels per day in 2012 above the group’s September output.
US commercial crude oil stocks are forecast to have risen for the second consecutive time last week as imports continued to rebound, a preliminary Reuters poll of analysts found on Monday.
The industry group American Petroleum Institute’s inventory report is due on Tuesday at 2030 GMT, with the US Energy Information Administration’s report following on Wednesday. –Additional reporting by Zaida Espana in London, and Rebekah Kebede in Perth.
