Oil prices retreated on Tuesday as data showing a shrinking euro zone economy fuelled fears of curbed demand for petroleum, while news that major powers accepted Iran's offer for more talks on its nuclear program eased concerns about supply disruptions.
Oil, global equities and the euro came under pressure from worries about a global growth slowdown and uncertainty over whether enough investors would participate in a Greek debt restructuring to enable it to avert a default. The EU's foreign policy chief, representing six powers - the United States, Russia, China, France, Britain and Germany - wrote to Iran's chief nuclear negotiator accepting an offer to meet to discuss Tehran's nuclear program.
Also helping ease investor fears of oil supply disruption because of its disputed nuclear program, Iran said it would give the UN's International Atomic Energy Agency (IAEA) access to Parchin, a military complex previously off-limits to IAEA nuclear inspectors. "The risk premium on Iran was pretty high, so one should expect to see that fading because world powers are willing to talk to Iran," said Olivier Jakob, an analyst at Petromatrix in Zug, Switzerland.
Brent crude fell $1.82 to settle at $121.98 a barrel. Brent's $121.59 intraday low was just above of the 20-day moving average at $121.32. US crude fell $2.02 to settle at $104.70 a barrel, with the $104.51 low near the 20-day moving average of $104.22. Sanctions on Iran and Tehran's threats to retaliate by shutting the key Strait of Hormuz oil shipping lane, along with other potential threats to supply have kept crude prices elevated.
Brent was up more than 19 percent for the year at its 2012 peak above $128 a barrel last week. Brent's premium to US crude was little changed, ending at $17.28 a barrel based on settlements. Total Brent crude trading volume was 24 percent above its 30-day average, slightly exceeding US turnover that hovered near its 30-day average.
The dollar index strengthened more than a half percent and the euro slumped against the US currency to its lowest in more than two weeks on the mounting concerns about global economic growth. The European Union data showing the economy in the euro zone shrank 0.3 percent in fourth-quarter 2012 followed Monday's news that China cut its 2012 economic growth target to an eight-year low of 7.5 percent, reinforcing worries about curbed oil demand growth.
Additional reinforcement followed when the US Energy Information (EIA) cut its world oil demand growth forecasts for both 2012 and 2013. Investors await data on China's industrial output, investment and retail sales and the closely watched monthly US non farm payrolls report, both due on Friday, for a fresh snapshot of the world's two largest economies.
US crude inventories are expected to have risen last week, by 800,000 barrels, a Reuters survey of analysts ahead of weekly stockpile reports showed. Distillate and gasoline stockpiles were to be down 1.5 million and 1.4 million barrels, respectively. US retail gasoline demand fell 1.5 percent last week versus the previous week and 6.5 percent compared to the year-ago period, MasterCard said in a weekly report. The American Petroleum Institute industry group is slated to release its report on US oil inventories at 4:30 pm EST (2130 GMT) on Tuesday, with the EIA's government tally following on Wednesday at 10:30 am EST (1530 GMT).
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