Oil slumps for second day as euro fears dominate

ROBERT GIBBONS | SEPTEMBER 2011 | SOURCE: Reuters Africa

Oil tumbled in a second day of heavy losses on Monday, with Brent crude reaching its lowest price in almost a month as escalating fears over the euro zone debt crisis triggered across-the-board selling of riskier assets.

After notching its biggest two-day drop since a steep slide in early August, Brent pared losses in post-settlement trade on news that Greece may be near an agreement with lenders to continue receiving bailout funds. Still, the growing possibility of a default hung heavy over markets all day after leaders failed to find new ways to resolve the crisis at the weekend.

Oil slumps for second day as euro fears dominate

Oil has weathered much of the turmoil in financial markets over the past month thanks to supportive fundamentals, such as diminished North Sea production and healthy Chinese demand.

After falling below $100 in August, Brent has traded in a band of around $105 to $115 a barrel for the past month.

On Monday it appeared to be succumbing to broader macro-economic fears, causing a renewed spike in options. Technical selling as Brent crude crashed below the 200-day moving average likely spurred selling too.

"Markets are under pressure as the European finance ministers failed to come up with anything solid this weekend. There are some strong worries that Greece is not doing what's needed to get another round of aid," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

Trading volume was anaemic at more than a quarter below the one-month average as investors kept their powder dry ahead of a host of major events this week, including the U.S. Federal Reserve's likely measure later this week to temper long-term interest rates, the International Monetary Fund's gathering of major financial ministers and a slew of U.S. housing data.

ICE Brent November crude fell $3.08 to settle at $109.14 a barrel, having fallen as low as $108.87, its lowest price since Aug. 24. It has closed below the 200-day moving average, effective at $110.41 on Monday, only about four times in the past year, all of them in August.

"While oil market fundamentals remain tight, oil prices will not fall, no matter how dire the global economic outlook. Without more supply, only another demand collapse will bring prices down," the UK-based Centre for Global Energy Studies (CGES) wrote in its latest report.

OPEC promised to prevent markets from becoming oversupplied. Secretary General Abdullah al-Badri said in Dubai that producers would reduce output as Libya gradually resumes production following its six-month civil war.

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