Oil Prices Fall To Their Four-Month Low Amidst European Debt Crisis

06/20/2011 09:46 am ET | Updated Aug 20, 2011

LONDON (Zaida Espana) - Crude oil prices fell by more than $1 on Monday, extending last week's losses, with risk aversion rising after euro zone finance ministers postponed a final decision on emergency loans to Greece.

By 1200 GMT, Brent crude fell by $1.50 a barrel to $111.71 a barrel, while U.S. oil lost $1.30 a barrel to $91.71 a barrel.

"The crisis in Greece has resulted in higher risk aversion, which is weighing on oil prices," Commerzbank analysts led by Eugen Weinberg said in a note.

Euro zone finance ministers postponed a final decision on extending 12 billion euros ($17 billion) in emergency loans to Greece, pending approval of the introduction of harsh austerity measures by Athens, which pushed the common currency lower.

The dollar index .DXY gained 0.4 percent against a basket of currencies, dragging greenback-denominated commodities lower.

"The daily movement of the euro has been an important price driver for oil for well over a year now," analysts at PVM brokerage said. "There's no doubt that the biggest influence on the euro and oil prices at the moment is the thinking around Eurozone countries' sovereign debt. Contagion is the watchword."

The euro zone ministers said they expected the money, the next tranche in a 110 billion euro bailout of Greece by the European Union and the International Monetary Fund, to be paid by mid-July. Greece has said it needs the loans by then to avoid defaulting on its debt.

"Right now, both crude oil prices and the euro are a touch lower, but an expected short-term agreement will likely enable markets to breathe a little easier and allow commodity complexes to stage a respectable bounce on account of a stronger euro," MF Global analysts said in a note. "However, any 'solution' for Greece will be a temporary fix at best, as this issue is far too difficult to be wrapped up in a few weeks."

On Friday, Brent settled at $113.21 a barrel, its lowest level since May 24, down 4.7 percent in its biggest weekly loss since the week to May 6. U.S. crude futures settled at $93.01 a barrel, down 2.04 percent, their lowest since February 18.

U.S. crude fell below the key 200-day moving average for the first time since September, drawing additional selling.


Still, oil is unlikely to dip further because supply side concerns remain alive as unrest in the Middle East and North Africa continues, and the current slump will offer a buying opportunity, Victor Shum, an analyst at Purvin & Gertz, said.

"Two factors have contributed to the collapse in oil futures -- Greece and the U.S. economic outlook," Shum said. "But the pull-back in prices is temporary because the Greece crisis will pass and supply side concerns remain."

Against the backdrop of the uncertain growth outlook, continuing social unrest in Libya, Syria and other countries in the Middle East is helping to keep a floor under oil prices.

President Bashar al-Assad gave a speech on Monday urging Syrians to help restore normality even if the 'crisis' lasts for months, adding that parliamentary elections are due in August.

A military operation along the border follows the biggest protests on Friday during four months of anti-Assad unrest that a violent clampdown has failed to quash. Security forces shot dead up to 19 protesters on Friday, rights groups said.

In Libya, NATO has admitted it destroyed a house in Tripoli in which Libyan officials said nine civilians were killed, an incident likely to sow new doubts inside the alliance about its mission in the north African country.

(Additional reporting by Manash Goswami in Singapore; editing by James Jukwey)

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