Oil Down On Eurozone Worries

Price of crude oil has dropped on Eurozone debt worries and likelihood of Greece leaving the currency.

Crude oil fell towards $106 a barrel on Tuesday as the deepening Eurozone debt crisis hurt the outlook for global fuel demand, counterbalancing bullish sentiment from renewed fears of Middle East supply disruptions.

“There is a tug of war between a renewed geopolitical premium and the prospect of a weakening global economy on the back of the Eurozone crisis,” said Olivier Jakob at consultancy Petromatrix.

Brent crude for July delivery fell 25 cents to $106.86 per barrel this morning, after hitting a high of $108.04 in the previous session.

U.S. crude oil futures rose 36 cents to $91.22, after rising more than $1 per barrel with the return of U.S. market players from Memorial Day weekend in the U.S.

Tension between major oil producer Iran and the West remains high after inconclusive discussions last week on Tehran’s nuclear programme, increasing the risk of conflict in the Middle East and disruption of global oil supplies.

“Iran is back on the radar. We are not going to see any move to lift sanctions any time soon, geo-political risk will continue to be the underlying support for prices,” said Michael Creed, an economist at National Australia Bank.

The stalled talks surrounding Iran’s nuclear plans have given some underpinning to oil prices that have fallen around 10 per cent this month because of the debt crisis in Europe that could lead to a Greek exit from the euro zone and uncertainty facing the U.S. and Chinese economies.

As Gulf Business previously reported, high oil prices are threatening the global economic recovery, according to the executive director of the International Energy Agency Maria van der Hoeven.

Concerns remain due to unplanned supply outages, international political tension over Iran and limited spare production capacity, she said.

“Prices remain very high,” van der Hoeven said. “High prices pose a real threat to the economic recovery.”