Oil prices fell back abruptly in afternoon trading on Monday after the euro slipped back against the dollar on a report that several major European countries may be put on credit-watch negative by Standard & Poor's. The slide back followed early gains on fears rising tensions with the west could disrupt Iranian crude shipments.
"We continue to see macroeconomic growth prospects as limited and the global petroleum market balance weakening, amid both lackluster demand growth and rising supply as Libyan production continues to ramp up more quickly than expected," said Tim Evans, energy analyst at Citi Futures Perspective in New York. Iran warned on Sunday that any move to block its oil exports would more than double crude prices with devastating consequences for a fragile global economy.
The European Union is considering a ban - already in place in the United States - on Iranian oil imports. Last week's storming of the British Embassy in Tehran has sparked tougher action against Iran which is thought to be working on a nuclear bomb. "The risk of disruptions to oil supplies remains high," said Christophe Barret, global oil analyst at Credit Agricole CIB. An embargo on Iranian oil "would introduce severe disruption to refining in several EU countries," he said.
Speculation about possible military strikes on Iranian nuclear sites have boosted the risk premium on oil, Barret added. But on Friday, US Defence Secretary Leon Panetta made one of his most extensive arguments to date against any imminent military action against Iran over its nuclear program, saying he was convinced sanctions and diplomatic pressure were working. However, even before the report of the potential S&P downgrades by the Financial Times, oil prices had pared their gains due to data showing slowing US and China service sectors. At the same time, hopes for a breakthrough summit of European policymakers on Friday for a firm plan to the region's debt crisis also gave way to scepticism that a durable solution could be forged.
In London, ICE Brent crude for January delivery settled at $109.81 a barrel, dipping 13 cents, after posting a session high of $111.62 early on worries of potential disruptions in Iranian oil shipments due to rising tensions between Tehran and western governments. NYMEX crude for January delivery settled at $100.99 a barrel, up just 3 cents, after trading between $100.24 and $102.44. Earlier, US crude was down 38 cents at $10.58, sliding from an early session high of $102.44, its highest intraday since November 17. Last week, US crude rose 4.3 percent.
The euro surrendered its gains against the dollar to hit a session low after the FT report said several major European countries may be put on credit watch negative by ratings agency Standard & Poor's. The dollar erased losses for the day and was up 0.01 percent against a basket of currencies. Meanwhile, oil ministers from Opec members Kuwait, Oman and Bahrain said the market was well supplied, echoing comments by Qatar's energy minister and the Opec Secretary-General Abdullah al-Badri at the weekend. Opec will meet next week in Vienna, but with Iran holding the presidency of the Opec conference until the end of the year, analysts do not expect much from the meeting.