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Oil pressured by Europe debt worries | ASHARQ AL-AWSAT English Archive 2005 -2017
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LONDON, (Reuters) – Brent crude fell around $1 on Wednesday as Moody’s decision to cut Portugal’s credit rating to “junk” status revived investor concerns about Europe’s debt problems and saw investors retreating from riskier assets.

ICE Brent crude LCOc1 fell 84 cents to $112.77 a barrel by 0840 GMT after touching a session low of $112.35. The benchmark rose more than $2 on Tuesday, its first gain in three sessions. U.S. crude CLc1 was down 24 cents at $96.65 a barrel.

Moody’s became the first ratings agency to cut Portugal’s credit standing to junk, warning the country may need a second round of rescue funds before it can return to capital markets.

This ended a seven day winning streak for European equities and pushed both Brent and U.S. light crude lower after they had been stronger in Asian trading.

“It looks a bit sketchy in Europe, there are a few worries about debt,” said Rob Montefusco, oil trader at Sucden Financial. “(Gains in Asia time) did look a bit overdone, I think we were seeing some funds coming back in at the start of the quarter after they lightened the previous week.”

Moody’s also warned its credit outlook on Chinese banks may turn negative as China’s local government debt may be understated by as much 3.5 trillion yuan ($540 billion).

Caution on the outlook for China, a major energy consumer, was also heightened after Singapore’s Temasek, a sovereign wealth fund, sold part of its stake in two of the so-called “Big Four” Chinese banks.


However, a bullish longer term view from banks on oil prices helped prevent sharper losses.

Barclays Capital raised its 2012 forecast for Brent on Tuesday by $10 to $115 per barrel, and upgraded its 2012 forecast for U.S. crude by $4 to $110. The bank left its Brent forecast for 2011 at $112 but cut its U.S. crude 2011 forecast by $6 to $100.

Market players said prices were also dented by a 60 million barrel release of emergency stocks by the International Energy Agency, though there was still uncertainty as to how the oil would be released and the extent of its overall impact.

Top exporter Saudi Arabia earlier said it would pump enough oil to meet global supply after an OPEC meeting failed to reach agreement on increasing quotas.

However, traders said Asian refiners may skip taking extra volumes of crude being offered by Saudi Arabia as it failed to cut prices deeply enough to lure buyers.

The Saudis have effectively signalled that they believe the market is well supplied at current prices and they see no need to offer bigger discounts, said Clyde Russell, a Reuters market analyst.

An oversubscribed sale of U.S. crude reserves last week also had oil analysts and investors assessing whether it reflected tighter global oil supplies than recent assessments.

Crude oil inventories in top consumer United States are expected to have dropped last week for a fifth straight time, according to a Reuters poll.

Industry group American Petroleum Institute will release its weekly report later in the day, while the U.S. Energy Information Administration will issue its own data on Thursday.

In the Middle East, violence and unrest in Yemen and Iraq continues to provide a supportive geopolitical premium as a factor lifting oil prices, analysts said.