Singapore: Brent crude fell below $108 on Friday, on growing concern that European policy makers will fail to deliver a concrete plan to tackle the euro zone debt crisis at a key meeting, an outcome likely to hurt prospects for demand.
Hopes for a resolution to the region’s debt woes dwindled after the European Union (EU) failed to secure backing from all 27 countries to change the EU treaty, despite sealing a new fiscal pact ensuring tougher budget discipline at the summit on Friday.
This comes a day after the European Central Bank (ECB) dashed hopes for more supportive measures beyond an expected interest rate cut, overshadowing positive economic data from top oil consumers US and China.
Brent crude fell 39 cents to $107.72 a barrel by 9:43am, after falling by a dollar earlier. The benchmark had settled Thursday $1.42 lower at $108.11 a barrel. US crude was down 30 cents to $98.04, after plunging more than $2 a day earlier on the ECB news.
For the week, both benchmarks are poised for a fall around 3%, reversing gains last week.
“Before the ECB acts further, the EU has to come together, but the market doesn’t believe the EU can get its act together. They will likely do the bare minimum and prices are going to react month to month as they muddle through this crisis,” said Tony Nunan, a risk manager with Mitsubishi Corp in Tokyo.
Shares and other commodities fell, while the euro remained under pressure, on the bearish news out of the euro zone.
Prices weakened despite data showing China’s annual inflation rate falling in November to 4.2%, the lowest level in more than a year, fuelling expectations of further monetary policy easing in the world’s no.2 oil consumer.
“I think these figures will help confirm a clear shift in the monetary policy and the first interest rate cut would be seen in the first quarter of next year,” said Wang Jin, analyst with Guotai Junan Securities in Shanghai.
The rate is now close to the government’s official target of 4% and has dropped rapidly since hitting a three-year high of 6.5% in July.
Euro zone concerns also trumped fresh signs that the US economic recovery was gaining traction, as jobless claims fell last week to a nine-month low, data showed on Thursday.
The risks of a supply disruption from Iran were renewed as
European Union leaders were expected to call for more sanctions against the Middle East nation at a summit Friday in Brussels.
However, they are not likely to make an explicit call yet for an embargo on Iranian crude oil, amid mounting Western concerns that the Opec producer has worked to design a nuclear weapon.
“The US and Europe are ratcheting up the sanctions against Tehran, but it is far from certain that the punitive measures will alter the regime’s nuclear ambitions, and there is a risk that they could precipitate a deeper crisis,” said analysts at Barclays Capital in a report.
While the risk of either an Israeli or US strike on the Iranian nuclear facilities remains low, it has risen from 5 to 10% last year to 25 to 30% now, the report added.
The CME Group, parent of the Chicago Board of Trade, on Thursday lowered initial margins for Crude Oil Future NYMEX (CL) by 6.7% and Heating Oil Futures NYMEX (HO) by 8.6%. The move takes effect Monday.