NEW YORK: Brent crude oil fell 2 percent to a three-month low under $108 a barrel on Tuesday as uncertainty over a bailout for Cyprus raised concern about the euro zone debt crisis and its impact on energy demand.
Cypriot lawmakers overwhelmingly rejected a deeply unpopular tax on bank deposits on Tuesday, throwing into doubt an international bailout for the troubled euro zone member, needed to avert default and a banking collapse.
The tax proposal, announced over the weekend as a condition of the bailout, has renewed investor concern about the euro zone's ability to tackle its debt crisis, causing stock markets and oil prices to fall this week. Gold and other safe haven assets rose.
"The situation in Cyprus, although small, goes to show that the problems in the EU are far from over and it will exacerbate declining demand," said Natixis analyst Abhishek Deshpande in London.
Brent crude for May delivery touched a three-month low of $107.25 and settled down $2.06, or 1.88 percent, at $107.45 a barrel.
US crude for April delivery settled down $1.58 at $92.16 a barrel.
The spread between the two leading global oil benchmarks, Brent and West Texas Intermediate (US crude) contracted to $14.61 at one point during Tuesday's trading, the narrowest level since mid-January.
The US dollar firmed by 0.3 percent against a basket of foreign currencies. A stronger greenback can help to weaken oil since the dollar-denominated commodity becomes more costly for holders of other currencies.
The result of the vote in Cyprus could also affect oil if it causes a swing in exchange rates, said Tony Machacek, an oil futures broker at Jefferies Bache in London.
"If the euro makes a dramatic move, it will influence oil," he said.
The single currency was down by 0.6 percent against the dollar and traded below $1.29 for the first time since December.
<Center><b><i>Copyright Reuters, 2013</b></i><br></center>
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