Oil hits reverse gear on doubts over EU summit
Oil prices sank Wednesday, wiping out earlier gains, as traders expressed concern over whether the looming EU summit would fully resolve the eurozone debt crisis that has haunted markets for months.
In London midday trading, Brent North Sea crude for January delivery sank $1.14 to $109.67 per barrel.
New York's main contract, light sweet crude for January, sank 80 cents to $100.48 a barrel.
"Increasing pessimism about the chances of a deal to solve the eurozone debt crisis at the EU summit ... has made the markets very jittery," said Rebecca Seabury, energy analyst at British consultancy Inenco.
"They will continue to fluctuate until a convincing long-term, workable solution has been found."
The market also fell heavily after the US Department of Energy (DoE) revealed that American crude stocks surged last week, confounding expectations for a gain and indicating weaker energy demand.
The DoE said that crude reserves jumped 1.3 million barrels in the week ending December 2.
That compared with market expectations for a drop of 900,000 barrels, according to analysts polled by Dow Jones Newswires.
Meanwhile, European stock markets and the euro slid on Wednesday as pessimism set in that the EU summit would not deliver a significant breakthrough on the eurozone debt drama.
An early advance in European equities was halted by downbeat comments from German officials who poured cold water on hopes for a deal at a make-or-break two-day summit beginning on Thursday.
The oil market had risen on Tuesday, partly on concerns about simmering tensions between Iran and the West over Tehran's nuclear program.
Meanwhile on Thursday, market participants will also digest the latest interest rate decision from the European Central Bank (ECB).
The ECB is expected to cut interest rates for the second time in two months as the region teeters on the brink of recession.
"A rate cut could see a short-term boost to oil and other commodity prices, but the focus will remain on the EU summit in Brussels," added VTB Capital analyst Andrey Kryuchenkov.
Traders are also tracking the build-up to next week's meeting of the Organisation of Petroleum Exporting Countries (OPEC).
The head of OPEC on Wednesday described current oil prices as "satisfactory" to both consumers and producers, insisting a "decent" price is needed to encourage investments in production.
"Average oil price this year is satisfactory for producers and consumers," OPEC Secretary General Abdullah El-Badri told participants at the World Petroleum Congress in Doha.
"This year, the oil market has been in constant flux," he said, citing uncertainties over global economic growth, Japan's multiple disasters and unrest in North Africa and the Middle East.
But he insisted that there was "no shortage of oil."
Members of OPEC will meet on December 14 in Vienna, but many member states have indicated that there will be no changes to production despite a quicker-than-expected resumption of Libyan oil output.
© 2011 AFP