SINGAPORE: Brent crude steadied around $96 a barrel on Tuesday, staying close to 16-month lows hit in the prior session, as Spain's rising borrowing cost showed Europe is nowhere near resolving its debt crisis which has hurt the outlook for fuel demand.
Oil, along with other commodities, fell on Monday after an initial rally fueled by the victory of pro-bailout parties in Greece lost steam, as Spain's surging bond yields raised concern the country may need a full-blown bailout.
"The Greek election result gave the market a brief respite, that was it, now investors are clearly focused on Spanish government bond yields," said Michael Creed, an economist at National Australia Bank.
"The levels we are at right now are well over the trigger for a bailout."
Yield on Spanish 10-year bonds hit a fresh high above the unsustainable 7 percent mark on Monday. Greece, Ireland and Portugal were forced to seek international bailouts soon after their 10-year bond yields rose above 7 percent.
Brent crude for August delivery, which is down around 25 percent since hitting a peak above $128 in early March, was off 1 cent at $96.04 per barrel by 0206 GMT.
Brent hit a session low of $95.80, not far off Monday's trough of $95.38 which was its weakest since January 2011.
US July crude, which expires on Wednesday, slipped 11 cents to $83.16 per barrel.
Uncertainty in the market will likely keep volatility high as investors look for direction.
Key to finding that direction will be the US Federal Reserve's policy meeting this week and the China flash manufacturing PMI from HSBC due out on Thursday, said Creed.
The US central bank's two-day policy meeting, which kicks off later in the day, will be watched closely for any indication that the Fed will roll out another round of monetary easing to combat a slowing recovery.
That would be good news for commodities, such as oil, as it boosts market liquidity in the short term, and also builds fuel demand as the stimulus works its way into the economy.
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