London: Oil fell to around $88 a barrel on Thursday as mounting concerns over the debt-crisis in the eurozone overshadowed a large fall in crude oil stocks in the United States last week.
Investors were cautious a day after Spain was warned by Moody’s that it faced a downgrade to its credit rating. European leaders will begin a two-day meeting in Brussels on Thursday to try and agree the next steps in tackling the crisis.
“Today we have the re-evaluation of yesterday’s weekly (US inventory) statistics, which I think were in fact not that bullish,” said Christophe Barret, a global oil analyst at Credit Agricole.
He added that concerns over the eurozone outweighed other positive data from the US which showed that industrial output was higher and inflation low in the world’s largest oil consuming nation.
Ratings agency Moody’s said it did not expect Madrid would have to follow Greece and Ireland and accept a bailout from the European Union bailout, but it could not be ruled out.
US crude for January fell 44 cents to $88.18 a barrel by 5:06pm, ICE Brent, which expires on Thursday, dropped 34 cents to $91.86.
In a note to clients, Stefan Graber, an analyst at Credit Suisse, warned that the 9.85 million barrel plunge in weekly U.S. crude oil stocks which drove oil prices up almost $1 on Wednesday was seasonal, due to a sharp drop in imports, and could be temporary.
“The net position is pretty much neutral at the moment, but it seems to be reasonably supported around the $88 per barrel mark,” said David Taylor an analyst at CMC Markets in Sydney.
The eurozone concerns also weighed on the dollar, which traded down 0.2% against a basket of currencies.
A weaker dollar can often strengthen dollar-denominated oil prices as it makes fuel cheaper for holders of other currencies.
Weakness in the greenback can also push investment out of foreign exchange markets and into commodities.
US industrial output rebounded in November to post its biggest gain since July, another sign of a faster pace of recovery in the fourth quarter, Federal Reserve data showed.
Government data also showed that inflation was low, with consumer prices posting a mild gain.
The US futures regulator, the Commodity Futures Trading Commission, on Wednesday announced a postponement of contentious reforms that will limit the positions any one investor can hold in commodity markets.
The latest US jobless claims and housing statistics are due out at 1330 GMT.