ET:Brent crude falls as low as $111.11 as spread to WTI narrows
SINGAPORE: Brent slipped on Tuesday on continued uncertainty over the Greek debt crisis, narrowing its premium to U.S. crude futures which rose on bargain hunting after losses in the previous session.
Brent fell as much as 58 cents to $111.11 a barrel, and traded at $111.67 at 0402 GMT. U.S. oil gained 39 cents to $93.65 a barrel, after rising to as much as $94.
The sell-off in a key spread between Brent and U.S. futures, which weighed on prices on Monday as well, is because premiums of the North Sea benchmark had gone far too high, analysts said. Brent is also falling due to growing uncertainty over demand in Europe as a result of Greece's debt crisis.
"The premium for Brent had just gone too high," said Ken Hasegawa, a commodity derivatives manager at Japan's Newedge brokerage. "That is why we are seeing the correction. Also, the market is very cautious because of the Greek debt issue."
For U.S. crude, the fall in the previous session, on the back of a slump to a four-month low last week, provided a buying opportunity ahead of a key meeting of the U.S. Federal Reserve this week, while a weak dollar also helped prices recover.
The market may stay bound in a range ahead of a Federal Open Market Committee meeting, as participants watch for comments by Federal Reserve Chairman Ben Bernanke on the outlook for growth just as the second phase of quantitative easing measures in the world's biggest economy is supposed to wind down.
"The fall was to a good enough level to prompt buying on the dips," Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd. "Fundamentally, there is no change. People are going to wait and see what the Fed's view is on the economic situation."
THREATENED RECOVERY
High oil prices are a major risk for the global economic recovery as they put upward pressure on inflation, the International Energy Agency's chief economist, Fatih Birol , said while addressing a conference in Singapore on Tuesday.
There is a strong potential that if oil prices stay high, they will derail the economic recovery, he added.
Oil fell on Monday, pressured by uncertainty over the approval of austerity measures for Greece, apart from the sell-off of a key spread between the two benchmarks.
Brent settled down $1.52 at $111.69 barrel, while U.S. crude oil futures settled up 25 cents at $93.26 a barrel after testing the 200-day moving average. Additional support came from buying ahead of the expiry of the July contract on Tuesday.
U.S. oil is expected to stay between $90 and $100 a barrel at least until there is more clarity on growth in the United States and gasoline consumption, Emori at Astmax said.
Industry group, the American Petroleum Institute, will release its weekly report on stocks later in the day. U.S. crude oil inventories fell last week amid lower imports and a rise in refinery utilization rates, a preliminary Reuters poll ahead of the report showed. Crude stocks were forecast down 500,000 barrels, on average, in the week to June 17.
Euro zone finance ministers gave Greece two weeks from Monday to approve further spending cuts and tax increases in exchange for another 12 billion euros in emergency loans, piling pressure on Athens to get its ragged finances in order.
