London: Oil prices fell towards $102 on Monday after Greece said it would miss its deficit target and as concerns rose about Franco-Belgian bank Dexia, which pulled down stocks and the euro, while the dollar strengthened.
Brent crude futures were down 55 cents to $102.21 a barrel at 4:30pm after hitting an intraday low of $101.12. US crude futures were down 68 cents to $78.52.
Investors and traders have been troubled by draft figures released by Greece on Sunday showing it would miss a deficit target set just months ago in a massive bailout package. This suggests the steps taken to avert bankruptcy may not be enough.
In addition, Belgian and French finance ministers will meet on Monday to discuss ways to shore up the balance sheet of Franco-Belgium financial services group Dexia . Dexia has one of the largest exposures to Greece among non-Greek banks.
The euro and European shares also sold off as investors mulled the lack of a credible solution to Europe’s debt crisis.
“Greece said it could not meet its deficit target for the rescue plan and I think that was a significant input,” said Olivier Jakob, oil analyst at Petromatrix.
“There is the possibility that Belgian bank Dexia might need to go through some sort of nationalisation. The market is still very jittery about the banks so that could put some pressure on there.”
Christophe Barret, global oil analyst at Credit Agricole CIB, pointed to weak demand figures in the US and Europe, and the return of Libyan crude to the market as likely to weigh on oil prices. “At over $100 a barrel the Brent price is still pretty high so it should continue to go down,” he said.
United Arab Emirates (UAE) OPEC governor Ali Obaid Al-Yabhouni also pointed to “ominous clouds on the horizon” for oil demand because of global economic problems.
European debt problems and the prospect of weaker demand in parts of Asia are a big worry for producers, he said.
Analysts and traders are now unsure as to where oil will go next. Christopher Bellew, a trader at Jefferies Bache, said if Brent dipped below $100 it would probably not stay there for long as funds would come back in and start buying.
But Jakob suggested there was a risk of some selling by hedge funds this week because last Friday was the final day for many hedge funds’ quarterly redemption notice periods.
“We expect the oil price to remain under pressure from both the ongoing Eurozone debt crisis and the deteriorating global economy,” said Marc Ground, an analyst at Standard Bank. “Volatility is expected to remain elevated.”
A bearish target at $99 per barrel has been established for Brent, according to Reuters market analyst Wang Tao. Jakob said with the support of $80 having been broken for US crude, $75 will now be targeted for support.
Chinese data offered some support to prices as it showed industrial activity was improving. China’s factory activity picked up in September for a second month in a row and export orders strengthened.
The official Purchasing Managers’ Index inched up to 51.2 from August’s 50.9, largely in line with a median forecast of 51.3 in a Reuters poll.