Oil prices fall on EU summit treaty failure

9th December 2011, Comments 0 comments

Crude oil prices dipped on Friday after Europe's leaders failed to agree a new treaty to tackle the debt crisis, and began work instead on a separate pact for the eurozone, analysts said.

Traders also eyed next week's output meeting of the Organization of Petroleum Exporting Countries (OPEC), the cartel which pumps about one third of the world's oil.

In London midday deals, Brent North Sea crude for delivery in January shed 32 cents to $107.79 a barrel.

New York's main contract, light sweet crude for January, dipped 23 cents to $98.11 a barrel.

"The market was very nervous before the summit and fears have now grown as a result of the failed talks," said Rebecca Seabury, an energy analyst at British consultanct Inenco.

"The fear is that Brent crude oil prices will continue to fall towards the $100-a-barrel mark, prompted by the lack of stability and the knock-on economic effect of the confusion across Europe."

Feuding European Union leaders failed on Friday to agree a new treaty to solve the sovereign debt crisis -- but made progress towards a separate pact for the eurozone that would leave Britain out in the cold.

At a summit overnight in Brussels, British Prime Minister David Cameron blocked EU-wide changes after failing to secure a concession of a halt in ongoing EU efforts to curb the City of London's huge financial services sector.

However, 23 EU nations -- including the 17 that use the euro -- agreed to sign an accord to make greater fiscal discipline legally binding.

The news has sent the oil market lower amid ongoing concerns about the uncertain outlook.

"The oil market looks fairly nervous with high volatility," said Sucden Financial Research analyst Myrto Sokou in London.

"The 17 euro members are now negotiating to form into a separate euro group where strict controls over budgets will be devolved to Brussels.

"So following these tentative conditions, we expect many statements to be issued over the weekend."

Investors' mood was already dampened by remarks from European Central Bank president Mario Draghi dashing hopes that the bank would intervene to prop up eurozone sovereign bonds.

"Markets were disappointed that Draghi maintained a hardline stance against expanding its balance sheet be it via direct intervention in the bond markets or other indirect means or partial measures," Singapore's DBS bank said in a report.

Draghi said Thursday that hoped-for ECB action to buy up the sovereign bonds of debt-wracked countries was "limited" and "temporary".

His comments were a blow to crude markets which had earlier rallied on an ECB confirmation that it was cutting its main interest rate by a quarter percentage point to 1.00 percent to spur economic activity, the second monthly cut in a row.


© 2011 AFP

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