Oil prices fell on Monday as eurozone data revealing contracting industrial output highlighted the possibility of a regional recession as Europe struggles to contain its sovereign debt crisis. Industrial production in the 17-country bloc fell 2.0 percent in September from August, the European Union's statistics office said.
This dimmed support for oil from investors who had hoped new governments in Italy and Greece would help their economies avoid a collapse. The euro fell versus the dollar on the poor industrial data, strengthening the dollar index and helping pressure dollar-denominated oil. Equities in Europe and on Wall Street also felt pressure from the data.
"The markets are realising there are real economic problems in Europe," said Christophe Barret, global oil analyst at French bank Credit Agricole.
German Chancellor Angela Merkel said Europe could be living through its toughest hour since World War Two as new leaders in Italy and Greece formed new governments and look to limit damage from the debt crisis. ICE Brent December crude fell $2.64 to $111.52 a barrel by 1:04 pm (1804 GMT), near its $111.42 low after having reached $114.83.
US December crude fell $1.29 to $97.70 a barrel, after settling at a 15-week high on Friday. Trade was choppy and the spread between front-month US December crude and the January contract slipped into contango - where the front-month price is weaker than nearby months.
Crude had been in backwardation, considered a more bullish condition, where the front-month is more expensive than contracts further out. US December crude options expire on Tuesday and the contract expires on Friday. Brent's premium to US crude narrowed to under $14 a barrel, continuing its retreat from a $19.91 intraday peak on November 8. Trading volumes for both Brent and US crude approached half million lots after midday in New York, with Brent still 17 percent below its 30-day average and US volume 28 percent below its 30-day average.
US heating oil futures' losses were limited by support from expectations for approaching winter demand and exports, while gasoline futures tumbled on weak demand and expected imports. Heating oil's premium to gasoline based on Friday settlements was at 56.78 cents, or $23.84 a barrel. Monday's crude oil price weakness follows a strong rally from early October. US crude fell to a 2011 low of $74.95 on October 4 and Brent dipped below $100 per barrel on that day.
Supporting oil early on Monday was news Japan's economy expanded 1.5 percent in the third quarter, a signal of continuing recovery from the earthquake and tsunami disaster last March. Japan's utilities burned 200,000 barrels per day (bpd) of additional crude oil and 136,000 bpd of low-sulfur fuel oil in October than a year earlier, compensating for the loss of nuclear power capacity after the March earthquake, industry data showed.
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