LONDON—Crude-oil futures fell Friday as realization set in that a plan to solve Europe's sovereign-debt crisis may not be the ultimate cure for an economic slowdown that threatens to curtail demand for oil, analysts said.
"Is it churlish to point out that the markets have reacted positively to a package which contains numbers that only a short time ago were seen as unacceptable?" PVM asked in a note.
Weaker-than-expected Japanese industrial-production figures also pressured oil prices amid a lack of other market-moving news, said Thina Saltvedt, senior oil market analyst at Nordea Bank Norge in Norway.
The front-month December Brent contract on London's ICE futures exchange was down $1.13, or 1%, at $110.95 a barrel. The front-month December contract on the New York Mercantile Exchange was trading down $1.35, or 1.4%, at $92.61 per barrel.
Thursday's rally in oil futures could quickly run out of steam because the plan agreed at an EU summit isn't final and many details remain unclear, said VTB Capital's Andrey Kryuchenkov.
"As far as crude is concerned, market participants would gradually return to fundamentally based trading, and as long as light sweet tightness persists in the short run, keeping firm ground under crude prices, it would also be hard to justify rapid gains to July highs unless we see more supply disruption in OPEC or the North Sea," he said.
Also, the market has started to realize that a recapitalization of European banks, proposed at the EU summit, may help avoid recession but could still eventually result in weaker oil demand, Torbjorn Kjus, an oil analyst at DnB NOR Markets said. Banks may have to reduce their balance sheets, which would lower access to capital for businesses as a result and potentially limit economic growth in Europe, he said.
Meanwhile, the fact that the price rally seen earlier this week was restricted to Nymex crude, while Brent prices have barely risen over the same period "could be an indication that the upward potential for Brent is virtually exhausted," Commerzbank said. It could also indicate that a price drop can be expected "once the excessive euphoria on financial markets at present starts to fade," the bank added.
