Oil prices fell on Friday in choppy trading, heading for a weekly loss as pressure from expectations of credit downgrades for some euro zone countries countered the supportive effect of anxiety about Nigerian strikes and Iranian threats to shipping.
Credit rating agency Standard & Poor's was set to downgrade several countries in the European single-currency bloc, a senior euro zone government source said. The news pushed the euro to a 16-month low versus the dollar and helped pressure dollar-denominated oil prices.
European shares turned negative and US stocks fell on the credit-downgrade fears. "While it should be anticlimatic, the realisation will also be sobering. In particular, the flight to the dollar will be accelerated, pushing crude oil prices lower," said John Kilduff, partner at Again Capital LLC in New York.
Brent February crude fell 91 cents to $110.35 a barrel by 2:07 pm EST (1907 GMT). It earlier dropped as low as $109.71, just above its 100-day moving average of $109.69, after retreating from a $112.50 high. The February Brent contract expires on Monday. US February crude fell 44 cents to $98.66 a barrel, having swung from $97.70 to $100.19. Total trading volume for Brent crude was 23 percent above the 30-day average and that of US crude 9 percent above the same average.
Cash market oil traders said upcoming and current refinery maintenance, especially in the US Gulf Coast region and including at BP Plc's Texas City refinery, had helped support US gasoline futures. US heating oil futures slipped with crude. Euro zone concerns had already resurfaced earlier in the session after an Italian bond sale failed to match the success of a Spanish auction the previous day, reflecting the heavy refinancing load Rome faces over the next three months.
US consumer sentiment rose in early January to its highest in eight months on a pick-up in optimism about job prospects, a Thomson Reuters/University of Michigan index showed. While the consumer news provided a supportive note for oil, an earlier report showed the US trade deficit widened in November to its largest in five months, indicating imports might have weighed on fourth-quarter economic growth. Nigerian unions suspended strikes and protests for the weekend while talks with the government over the scrapping of a popular fuel subsidy continued. The unions warned of more industrial action if there was no resolution.
Iran's dispute with the West over the country's nuclear program and recent threats by Tehran to shut the key Strait of Hormuz oil-shipping lane remained supportive for crude prices, brokers and analysts said. Russia's departing ambassador to Nato said on Friday that Russia would regard any military intervention linked to Iran's nuclear program as a threat to its own security.
With Iran facing intensifying sanctions, a high-level team from the UN's International Atomic Energy Agency is expected to visit the country this month seeking explanations about concerns that Tehran is trying to develop nuclear weapons. Oil might be boosted by investors covering short positions into Friday's close because of a US holiday on Monday that will shut open outcry trading on the New York Mercantile Exchange, though there will be electronic trading for the Tuesday trade date.