Oil prices slip on eurozone worry

Oil prices fell on Monday, pressured by concerns that Europe's agreement on closer fiscal union will not solve its debt crisis and might deepen a regional slowdown. The euro, stock markets and gold all tumbled, while the dollar, German bund futures and US Treasuries, seen as a safe haven from the highly indebted eurozone governments, rose.
A European summit agreement last week to strengthen budget discipline in the eurozone failed to restore financial market confidence on Monday. Traders said the ECB intervened to buy short-term Italian debt after yields on Italian and Spanish debt spiked. All EU countries except Britain agreed last week on stricter budget rules, moves towards fiscal union and to provide up to 200 billion euros in bilateral loans to the International Monetary Fund to help tackle the crisis. Concerns remain that tight budget control will slow economic growth in the medium term, which will hit oil demand.
"The austerity measures will have a profoundly negative impact on economic growth and will make 2012 a very challenging year in economic terms," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets. Brent January crude fell $1.15 to $107.47 by 12:27 pm EST (1727 GMT), having slipped as low as $107, just above the 300-day moving average at $106.92. US January crude fell $1.67 to $97.74, only slightly above its $97.54 intraday low.
Rating agency Standard & Poor's (S&P) put more pressure on the eurozone when its chief economist said time was running out for the bloc to resolve its debt problems. Jean-Michel Six, chief economist of the agency that shocked financial markets last week by putting 15 eurozone countries on a watch for a potential downgrade, said last week's EU summit agreement was a significant step forward, but not enough.
Eugen Weinberg, head of commodity research at Commerzbank in Frankfurt, said markets could face additional pressure this week if S&P downgraded its rating of eurozone countries. "If we get an S&P downgrade, the markets will take another leg down," Weinberg said. "It has not been discounted yet." The government's report of rising US crude oil, gasoline and total distillate inventories in the week to December 2 and relatively mild late-autumn weather had pressured oil prices.
While crude oil and gasoline futures felt more pressure on Monday, US heating oil futures dipped only slightly despite a National Weather Service forecast for US heating demand to be 15.3 percent below normal, with demand for heating oil expected to average 14.3 percent below normal. The NWS also said heating oil demand was 20.6 percent below normal last week. US heating oil posted a 2.5 percent weekly loss last week. Helping counter the gloom from Europe was data showing strong demand from No 2 oil consumer China. China's crude oil imports in November rose 8.5 percent versus year ago to about 5.52 million barrels per day (bpd), the second highest on record on a daily basis.
Implied demand also increased in November to the second highest on record, according to Reuters calculations based on preliminary government data. The Organisation of the Petroleum Exporting Countries (Opec) has an oil ministers meeting Wednesday after ending a June meeting at odds over supply policy.
Opec looks set this week to agree to a new production target that will endorse current cartel output around 30 million barrels per day (bpd), delegates said. Opec's leading price hawk, Iran, said on Sunday the oil market was balanced and called on some Opec producers to cut back as Libyan output resumes.