Oil falls on euro zone worry, fading stimulus hope

Mon Jun 18, 2012 5:14pm EDT
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By Robert Gibbons

NEW YORK (Reuters) - Brent crude prices fell on Monday to 16-month lows as pressure from the broad euro zone debt crisis and fading expectations for coordinated central bank action erased gains derived initially from the pro-bailout election result in Greece.

Spanish bond yields reached euro-era highs, reminding investors that the region's economy remains stressed, even as political parties in favor of Greece's international aid package held talks to form a government.

After recent production hikes by Saudi Arabia that OPEC attempted to address at a policy meeting last week, a well-supplied global oil market kept feeding bearish sentiment even with the European Union's embargo of Iranian oil set for July.

U.S. stock indexes finished mixed, with the technology-propelled Nasdaq logging the noticeable gain, while the Dow Industrials fell and the broader S&P 500 managed only a 0.14 percent gain. .N

The euro fell from a one-month high against the dollar, and the strength of the U.S. currency .DXY also provided pressure on dollar-denominated oil prices. <USD/>

"The selloff after the initial rally was because last week's strength was on the news that central banks would have a coordinated response to the Greece election and now the hope for more stimulus or liquidity has faded," said Phil Flynn, an analyst at Price Futures Group in Chicago.

Brent futures are down 25 percent since early March as signs of slowing economic growth, Europe's escalating debt crisis and the restart of dormant talks over Iran's nuclear program combined to help pull prices back from a 2012 peak over $128.

Brent August crude fell $1.56 to settle at $96.05 a barrel, having traded to a one-week peak at $99.50 before retreating to $95.38.   Continued...

A worker collects crude oil sample at an oil well operated by Venezuela's state oil company PDVSA in Morichal July 28, 2011. REUTERS/Carlos Garcia Rawlins