Crude oil prices fell on Tuesday after a meeting between French and German leaders failed to ease concerns about the eurozone debt crisis. French President Nicolas Sarkozy and German Chancellor Angela Merkel proposed a tax on financial transactions and closer joint governance of economic policy, but did not propose increasing the eurozone bailout fund or selling eurozone bonds.
Concerns about the debt crisis have weighed on oil markets in recent weeks, adding to worries about weak US economic data that could hit fuel demand. "It doesn't look like the two biggest items were seriously discussed today - the potential for a euro bond and the size of the stabilisation/bailout fund," said Edward Meir, senior commodity analyst for MF Global in New York.
Crude prices dropped before the meeting as data showed sluggish German growth hobbled the eurozone, dragging down US stocks. The euro slid against the dollar.
September Brent crude futures fell 44 cents to settle at $109.47 a barrel in thin trading ahead of the contract's expiry later on Tuesday. The more heavily traded October contract gave up 71 cents to settle at $109.13. US crude traded down $1.23 to settle at $86.65 a barrel, having touched an intraday low of $85.62.
In late afternoon trade in New York, Brent crude trading volumes were 22 percent below the 30-day moving average while US crude trading volumes were 4 percent off the average. Volumes had surged during the first two weeks of August, rising as worries about the US debt ceiling, the debt crisis and a rash of weak economic data drove up trade after a quiet July. "It is still vacation, and we will likely remain range-bound over the next two weeks," said Richard Ilczyszyn, senior market strategist at MF Global in Chicago. "Once we have a direction for crude, we will see big money come back in."
High fuel prices and concerns about the economy have hit demand in consumer nations, with MasterCard reporting US gasoline demand fell 4.6 percent last week compared with year-ago levels, the biggest decline since February 2010. Implied volatility in the crude oil market rose following the press conference between Merkel and Sarkozy. The Chicago Board Options Exchange's Oil Volatility Index rose to 45.50 percent, up modestly from Monday's settlement at 44.66 percent, ending five days of declines and well off the two-year high of 70.37 percent hit on August 10.
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