SINGAPORE: Brent crude fell below $93 per barrel on Wednesday as heightened concerns that European leaders would fail to resolve the region's intractable debt crisis at a key meet this week offset tighter North Sea oil supply.
Caution ran high among investors after Germany staunchly opposed the idea of sharing the region's debt, damping expectations for a bold move from Thursday's summit of European leaders to halt a contagion from the 30-month long debt crisis.
Brent crude had fallen 27 cents to $92.75 per barrel by 0434 GMT. US crude was at $79.33, down 3 cents.
“Expectations for (a price direction from the EU meeting) seem to be weakening as the day goes by,” said Michael Creed, an economist at National Australian Bank.
“The EU will continue to kick the can down the road and we're unlikely to see any real resolution.”
German Chancellor Angela Merkel stamped out the idea of common euro zone bonds - favoured by France, Italy and Spain, saying that Europe would not share total debt liability “as long as I live”.
But lower North Sea output due to a workers' strike is expected to limit losses.
Brent on Tuesday posted its largest daily per centage gain since March 1 and settled above $93 for the first time in a week after Norway's Statoil ASA said it would shut four more oil platforms in the North Sea. This will reduce output at the world's eighth-largest oil producer by 150,000 barrels per day.
Brent's price jump stretched its premium over West Texas Intermediate (WTI) prices to more than $13 on Tuesday, the widest in more than a week.
“Price improvements this week are due to oil being oversold last week,” NAB's Creed said, adding that expectations of a fall in US crude stocks had also cast a slight bullish hue on oil.
US crude stockpiles were forecast to have fallen by 500,000 barrels last week because of a drop in imports, an extended Reuters poll of analysts found, ahead of data from the Energy Information Administration to be released at 1430 GMT.
But data from the American Petroleum Institute (API) late on Tuesday showed an unexpected rise of 507,000 barrels last week.
Oil is on track to drop more than 20 per cent in the second quarter, the largest three-month fall since the financial crisis in 2008, due to demand concerns triggered by economic worries.
“At current levels, oil is trading almost exactly at fair value,” Credit Suisse analysts said in its monthly report.
“The geopolitical risk premium due to a potential escalation of the situation surrounding the Iranian nuclear programme now seems to be priced out completely. Whether this is justified is arguable.”
US and EU sanctions on Iranian crude would start this week, but the impact was expected to be marginal as higher output from OPEC helped fill the shortfall, Creed said.
“The sanctions have quite a lot of holes so Iran will still be supplying quite a bit of volume,” he said.
Iran on Tuesday urged the European Union to reconsider an embargo on Iranian oil that comes into effect on July 1, saying that it wanted engagement and not confrontation with the bloc.
Geopolitical tensions rose in the Middle East after NATO allies condemned Syria for shooting down a Turkish military plane.