London: Oil fell on Wednesday after euro zone ministers failed to reach agreement on a second bailout for Greece, deepening worries over the health of the European economy and depressing the euro against a rising dollar.
Higher stockpiles of gasoline in the United States also worried investors, suggesting that fuel demand may be stalling in the world’s top oil consumer.
North Sea Brent crude oil futures for July, due to expire at the close of trade on Wednesday, fell $1.23 per barrel to a low of $118.93 by 02:20 pm while July US crude futures slipped $1.02 to $98.35.
Euro zone ministers failed on Tuesday to reach agreement on how private holders of Greek debt should share the costs of a new bailout, putting the onus on the leaders of Germany and France to forge a deal later this week.
Nervous markets pushed the bond yields of Greece, Ireland and Portugal to their highest since the introduction of the euro in 1999 amid uncertainty over a second rescue for Athens.
The euro looked poised on Wednesday to test recent lows against the dollar around $1.4320, while the dollar rose more than 0.60% against a basket of currencies.
“The dollar is stronger, the euro weaker and the Greek problems are hanging over the market,” said Olivier Jakob at energy consultants Petromatrix in Zug, Switzerland.
US gasoline inventories rose by 1.1 million barrels last week, industry group American Petroleum Institute said, their sixth consecutive gain and in line with forecasts. That moderated the bullish effect of a drop in crude stockpiles, which fell 3 million barrels, twice as much as expected.
Brent’s premium over US benchmark crude futures slipped below $21 per barrel, under Tuesday’s record of $22.79 a barrel.
Barclays Capital’s technical team said it expected the Brent-WTI spread to widen to as much as $24 per barrel in what it suggested was a bullish market for the North Sea contract.
“We look for the WTI/Brent spread to extend widening towards our target near $24 before easing toward the $19 area,” it said.
Brent reached a five-week high on Tuesday while US crude rose more than 2% as data from top oil consumers the United States and China eased concerns about the global economy and the threat to oil demand.
While US retail sales fell in May for the first time in 11 months, the slip was less than expected. Producer prices rose less than expected, braking sharply from April.
US retail gasoline demand climbed slightly last week from a year earlier, by 0.2%, a second consecutive rise as pump prices continue to ease, a report by MasterCard Advisors’ SpendingPulse showed on Tuesday.
Gasoline demand broke a near two-month long slump in the first week of June with data that included the Memorial Day weekend, marking the start of the summer driving season, showing demand rising 0.5% from a year ago.
But over the latest four weeks, average US gasoline consumption was down 1% from year-earlier levels.
Government data on US oil inventories and demand follows from the Energy Information Administration on Wednesday.
China’s implied oil demand in May topped the 9 million barrel-per-day mark for the seventh consecutive month, another signal that a tap on the economic brakes by authorities had not hurt demand for petroleum.
But Reuters calculations based on preliminary government data did show that while May oil demand was up versus the year-ago period, the growth rate slowed to its lowest since October and demand slipped sightly from April.
Brent’s premium above Middle East marker Dubai rose to its highest level since 2004, as the imbalance between undersupplied light sweet grades and abundant heavy sour supplies grows with increasing output from Saudi Arabia.