Oil slips as investors doubt EU growth talk

Brent crude slipped on Monday, briefly falling below 90 dollars with concerns about faltering global growth and Europe’s intractable debt crisis hitting investor confidence. The concerns over a further slowdown in the euro zone economy, which could lead to lower oil demand, overshadowed supply disruptions in the U.S. Gulf due to a storm and in strike-hit Norway.

Brent crude dropped by 82 cents to 90.16 dollars a barrel, having briefly touched as low as 89.86 dollars. Both contracts turned negative around the time of the European market open.“ Another round of European sovereign debt issues … and bearish fundamentals have already started to weigh on oil prices,” Morgan Stanley said in a research note. If OPEC production continues at today’s levels, stocks would build above normal through the third quarter and supply would outstrip demand in 2012.”
European shares and the euro also fell. Investors were skeptical that a June 28 to June 29 European Union summit would make any substantial progress towards tackling the euro zone debt crisis, now in its third year and buffeting Spain, the region’s fourth largest economy. German Chancellor Angela Merkel agreed on Friday with leaders of France, Italy and Spain on a 130 billion euros (156 billion dollars) package to revive growth. But Merkel said on Monday she was concerned that there would be too much focus on shared liability for debts at a forthcoming EU summit, and underlined again her opposition to this.
Shared liability was both politically and economically wrong she said. U.S. bank J.P. Morgan lowered its price forecast for Brent crude to an average 95 dollars a barrel for the third quarter from the previous $120. “The downward revision is largely due to a continued softening of oil demand due to weaker global economic growth,” J.P. Morgan analysts, led by Colin Fenton, said in the research note. Before the European market open, U.S. crude and Brent crude were trading higher than Friday’s close as a storm threat shut a quarter of U.S. offshore crude and gas output, while a strike in Norway closed two major fields including benchmark grade Oseberg.
U.S. companies shut oil and natural gas production in the Gulf of Mexico at the weekend as a precaution ahead of Tropical Storm Debby. Debby has since weakened while remaining the northeast Gulf of Mexico, the U.S. National Hurricane Centre (NHC) said on Monday. The U.S. Gulf of Mexico is home to about 20 per cent of the nation’s oil production. Oil workers in Norway went on strike from Sunday over a dispute on pensions and other issues and shut down the Heidrun and Oseberg fields, which together account for about nine per cent or 150,000 barrels per day of Norwegian oil production.
Oseberg is one of four North Sea grades used to determine Brent prices. A full production shutdown in Norway is unlikely, as the government has the authority to force a settlement if a dispute threatens its most vital industry. Data published by the IntercontinentalExchange (ICE) on Monday showed that speculators raised their net long positions in Brent crude by 75 contracts to 52,112 in the week to June 19. Although the increase in bullish bets was minor, it was the first rise after speculators had cut long positions for six weeks in a row.

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