NEW YORK (Reuters) - Oil prices fell on Monday, pressured by concerns that Europe’s agreement on closer fiscal union will not solve its debt crisis and might deepen a regional slowdown.
The euro fell to a two-month low versus the dollar, stock markets and gold tumbled, while the dollar .DXY, German bund futures and U.S. Treasuries, seen as a safe haven from the highly indebted euro zone governments, rose.
A European summit agreement last week to strengthen budget discipline in the euro zone failed to restore financial market confidence.
All EU countries except Britain agreed on stricter budget rules, moves towards fiscal union and to provide up to 200 billion euros in bilateral loans to the International Monetary Fund to help tackle the crisis.
But concerns remain that tight budget control will slow economic growth in the medium term, which will hit oil demand.
“The austerity measures will have a profoundly negative impact on economic growth and will make 2012 a very challenging year in economic terms,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.
Brent January crude fell $1.36 to settle at $107.26 a barrel, having slipped as low as $107, just above the 300-day moving average at $106.92.
U.S. January crude fell $1.64 to settle at $97.77 a barrel, only slightly above Monday’s $97.54 low, but staying above Friday’s $97.36 low.
Crude trading volumes remained tepid, with both Brent and U.S. under half a million lots traded and about 20 percent under 30-day averages.
Graphics: Demand for OPEC crude: link.reuters.com/zyk55s
OECD inventories fall: link.reuters.com/cyk55s
OPEC export revenues: link.reuters.com/wyk55s
OPEC market share link.reuters.com/xem55s
Graphic on China's crude imports: link.reuters.com/jaj55s
Rating agency Standard & Poor’s (S&P) put more pressure on the euro zone when its chief economist said time was running out for the bloc to resolve its debt problems.
S&P’s warning came after the agency rattled financial markets last week by putting 15 euro zone countries on a watch for a potential downgrade.
Eugen Weinberg, head of commodity research at Commerzbank in Frankfurt, said markets could face additional pressure this week if S&P downgraded its rating of euro zone countries.
“If we get an S&P downgrade, the markets will take another leg down,” Weinberg said. “It has not been discounted yet.”
The government’s report of rising U.S. crude oil, gasoline and total distillate inventories in the week to December 2 and relatively mild late-autumn weather had pressured oil prices.
U.S. crude stocks are expected to have fallen last week, with distillate and gasoline inventories rising, a Reuters survey of analysts on Monday showed.
U.S. heating oil futures slipped less than crude and gasoline futures, after last week’s 2.5 percent weekly loss, despite a National Weather Service forecast for U.S. heating demand to be 15.3 percent below normal this week and demand for heating oil to be 14.3 percent below normal.
The NWS also said heating oil demand was 20.6 percent below normal last week.
Providing some offset to the gloom from Europe was data showing strong demand from No. 2 oil consumer China.
China’s crude oil imports in November rose 8.5 percent versus year ago to about 5.52 million barrels per day (bpd), the second highest on record on a daily basis.
Implied demand also increased in November to the second highest on record, according to Reuters calculations based on preliminary government data.
The Organization of the Petroleum Exporting Countries (OPEC) has an oil ministers meeting Wednesday after ending a June meeting at odds over supply policy.
OPEC looks set this week to agree to a new production target that will endorse current cartel output around 30 million barrels per day (bpd), delegates said.
Saudi Oil Minister Ali al-Naimi confirmed on Monday that the kingdom pumped 10.047 million bpd in November, citing “demand from all over,” as the reason for the output boost.
Additional reporting by Christopher Johnson in London and Manash Goswami in Singapore; editing by Sofina Mirza-Reid