Oil falls on US, European debt fears

Crude oil prices fell on Monday due to growing fears of a sovereign debt default on either side of the Atlantic and on the possibility of another emergency stock release from the International Energy Agency.
Policymakers in Europe and the United States have offered no clear solutions to their respective debt problems, forcing investors into perceived 'safe havens' like gold, which rallied to a record high above $1,600 an ounce.
"People are cautious about what's happening, especially in Europe where some see the debt crisis worsening," said Joachim Azria, analyst at Credit Suisse in New York.
"The oil market has been volatile over the past month and with the focus on the debt problems in Europe traders are moving into 'wait and see' mode during the summer lull."
Brent crude futures touched a low of $114.66 but pared just under half those losses to settle down $1.21 at $116.05 a barrel. US crude, meanwhile, tracked weakness on Wall Street, losing $1.31 to settle at $95.93 a barrel, off an earlier low of $94.69.
Brent crude oil slipped below the 100-day moving average at $116.29, a key technical indicator for traders that supported the market throughout last week. Technical analysts said US crude looked even weaker, falling to within touching distance of the 200-day moving average at $94.15 a barrel.
Trading volumes were light at 30 and 41 percent below the 30-day average for US crude and Brent respectively.
French government spokeswoman Valerie Pecresse said she believed the eurozone's 17 national leaders meeting on Thursday at a summit in Brussels would agree on a rescue of Greece, supplementing a 110 billion euro ($154 billion) bailout launched in May last year.
But after three weeks of preparatory talks, it was unclear whether a consensus could be reached on a way for private owners of Greek government bonds - banks, insurers and other investors - to contribute to the bailout by taking cuts in the face value of their holdings.
In the United States, Republican and Democratic lawmakers scrambled to avoid a government debt default as the Treasury approached the statutory $14.3 trillion limit on borrowing. But while there were few signs of concrete progress as the August 2 deadline draws dangerously close, most analysts still say they expect a deal to be struck in time.
"The lingering debt ceiling crisis in the US is not as serious (as in Europe), as in a worst case scenario politicians will make only marginal cuts and run for cover, thus providing themselves with 'the out' they need in order to raise the debt ceiling," analysts at MF Global said in a note to clients.
The euro fell back toward $1.40 against the dollar while the dollar index was up by 0.3 percent against a basket of currencies. A stronger dollar tends to weigh on commodities priced in the greenback.
However, the spread between Brent and US crude rose to about $20 a barrel, with exchange and regulator data showing hedge funds and other large investors taking a more bullish view of Brent in the week to last Tuesday.
Speculators increased net-long futures and options positions in both contracts but by only 2 percent in US crude compared with 20 percent in Brent.
The International Energy Agency (IEA), the West's oil watchdog, is expected to confer with its member countries by July 23 to decide whether to draw further on emergency oil stocks, a move that requires the backing of all 28 members. Last month, member countries agreed to release 60 million barrels, only the third such move in the IEA's history, in a bid to calm the near 20 percent in Brent prices since the start of the civil war in Libya.
The IEA stock release drove Brent down to $102.28 on June 27, but now prices are at a similar level to where the front-month contract was trading when the Organisation of the Petroleum Exporting Countries (Opec) failed to agree on a collective output increase on June 8.
"Another release might not be imminent but they could decide on another release by the beginning of September," said Azria at Credit Suisse.
"The full take up of the 30 million barrels offered in the United States could provide the incentive for a further release."