London: Brent crude fell below $111 per barrel on Wednesday, dented by worries on the euro zone debt crisis and the demand outlook after Moody’s Investors Service cut Spain’s sovereign rating.
Brent crude fell 49 cents to $110.66 a barrel at 02:25 pm, after slipping as low as $110.32. US crude slipped 7 cents to $88.27 a barrel.
Moody’s said on Tuesday the two-notch downgrade was partly due to the challenge Spain faced in meeting its fiscal target because of the region’s worsening growth prospects.
Equity markets were stronger after reports that France and Germany had agreed a plan to boost the euro zone rescue fund to €2 trillion.
However oil and other demand-sensitive commodities like copper were weighed as investors worried about the consequences of such a deal.
“We may avoid a catastrophe, but even if there is a solution, there will be a price to pay, and there will be an economic cost which will hit demand and growth,” said Christophe Barret, analyst at Credit Agricole Corporate and Investment Bank.
Adding to reasons for investors to take a bearish stance, Moody’s also cast doubt on France’s triple-A credit rating on Tuesday, saying it may slap a negative outlook if slower growth and the costs of helping bail out banks and other euro zone members stretch its budget too much.
Standard & Poor’s cut the ratings of 24 Italian banks and financial institutions on weaker growth prospects.
However, Brent crude has gained around 7.7% this month, on target to post its strongest such rise since February, helped by tightness in supply in the North Sea, and for oil products.
“The supply side is tighter and there has been some trending upwards,” said Tony Machacek, trader at Jefferies Bache.
Crude prices got a lift on Tuesday from an unexpected decrease in crude stocks in the United States, the world’s biggest oil consumer.
Crude stocks fell 3.1 million barrels in the week to 14 October, oil trade group American Petroleum Institute said on Tuesday, while analysts had expected a 1.8-million-barrel increase.
Gasoline stocks fell 1.6 million barrels, more than the 1.3 million barrel fall expected by analysts.
The market will be watching for data from the US Energy Information Administration, due out Wednesday.
“The stats yesterday were very supportive so we’ll have to watch for the (EIA) data to see if there is confirmation of that,” Barret at Credit Agricole said.
Traders were also watching Libya for clues on how fast its production would come back on stream.
Libya is gradually ramping up crude output. US Secretary of State Hillary Clinton hailed “Libya’s victory” during a visit to Tripoli, even as fighters loyal to Moammar Gadhafi
were still holding out in his home town.
“The increased frequency and consistence of exports later this month and into November would indicate that the production levels have exceeded our conservative estimate of 300,000 barrels per day currently,” JPMorgan said in a report.