Oil fell on Monday as fears grew that Greece may yet default on its debt and a stronger dollar weighed on prices after a brief price recovery on supportive US data failed to hold. Brent crude closed at its lowest price since February and US crude posted its lowest settlement of the year after reports showing US factory activity expanded at a faster pace than expected in September and construction spending rebounded in August gave oil and Wall Street equities only brief support.
"Looks like the negativity from late last week and worries that global demand for oil will be hit by another recession outweighed the better-than-expected data," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut. Greece's admission in draft budget figures released on Sunday that it will miss its 2011 deficit target put pressure on equities and oil prices and raised new doubts over a planned second international bailout.
The reinvigorated Greece crisis sent the euro to a fresh 8-1/2-month low against the dollar. The dollar index strengthened more than 1 percent. A stronger dollar can pressure dollar-denominated commodities prices by making them more expensive to consumers using other currencies.
Brent crude for November fell $1.05 to settle at $101.71 a barrel, it's weakest close since February 15. Brent fell intraday to $100.71, a nearly eight-week low. US November crude fell $1.59 to settle at $77.61 a barrel, the lowest settlement since September 28, 2010. It traded on Monday from $76.85 to $79.64. Intraday lows for both Brent and US crude were the weakest prices since August 9, in the week after ratings agency S&P's late-Friday downgrade of United States' credit rating.
Brent's premium to US crude was little changed, trading near $24 a barrel. The spread widened after support held above $21 as the 2011 third-quarter drew to a close last week. Trading volumes neared half a million lots, but were under the 30-day average for both Brent and US crude. US stocks tumbled more than 2 percent as investors fretted over the banking sector's exposure to a possible sovereign default in Greece and its effect on European lenders.
Belgian-French bank Dexia's capital position looked increasingly stretched by its exposure to debt-laden Greece. US gasoline and heating oil futures also briefly turned higher and the day's losses limited by the expected impact of last week's fire at Royal Dutch Shell's Singapore refinery on the global products market, brokers and traders said.
Shell's 500,000-barrel-per-day refinery shutting caused the company to cancel the lifting of 4 million barrels of crude and to declare force majeure on some of its deals, mostly involving distillates. While oil supply and demand appears largely in balance currently, United Arab Emirates (UAE) Opec governor Ali Obaid Al-Yabhouni said there are "ominous clouds on the horizon" for demand because of global economic problems.
Libya's interim government said oil output was improving at a faster rate than expected, while cautioning that it will take 12-18 months for production to return to normal. Later on Monday, the chairman of the National Oil Corporation said told Reuters the country will start pumping oil at two major oil fields with a combined capacity of 450,000 barrels per day (bpd) in about two weeks.