Brent crude fell to a near 17 month low below $95 a barrel on Tuesday, hit by the latest twist in the Eurozone crisis, but steadied because Spain managed to sell debt, even though its costs soared to their highest since 1997.
Oil fell along with the single currency and equities after a comment from a German constitutional court that said that Angela Merkel’s government had not consulted parliament sufficiently about the configuration of Europe’s permanent bailout scheme, the European Stability Mechanism (ESM).
The subsequent bounce in oil prices, however, was capped by more signs that the Eurozone economy was likely to remain subdued, keeping oil demand weak in the region.
Brent crude futures briefly slipped to $94.44 a barrel, the lowest since January 2011. It trimmed the earlier losses and trading 63 cents lower at $95.43 by 1000 GMT. US crude was 19 cents lower at $83.08 a barrel.
Brokers said a further fall in Brent prices might be likely now that the important $95 mark has been broken.
“Stop loss liquidation of some long positions was triggered when Brent broke $95, compounded by pervading gloominess towards the Eurozone,” said Mark Thomas, head of Energy Europe at brokerage Marex Spectron.
Spain’s short-term borrowing costs soared as investors worried the country, the Eurozone’s fourth largest economy, will soon be forced to ask for international aid.
The Euro and European shares slipped after the German ZEW economic sentiment index dropped sharply on concerns about Spanish bank woes and Greek political instability.
Investors also will watch out for fresh trading cues from the U.S. Federal Reserve’s policy meeting and the China flash manufacturing PMI from HSBC this week.
OPEC will reduce output to adhere to its 30 million barrel per day production ceiling and the effects should be seen in July, OPEC secretary-general Abdullah al-Badri said last week.