Brent falls below $103 on N.Korea news

Market remains concerned over whether Europe crisis will spread to China.

Brent crude futures fell below $103 on Monday,as ongoing concerns over the euro zone debt crisis and the prospect of regional instability after the death of North Korea’s leader weighed on riskier assets.

Sentiment softened after Fitch Ratings warned on Friday it may downgrade France and six other euro zone countries,saying a comprehensive solution to the region’s debt crisis was beyond reach.

The market is still concerned that what’s going on in Europe will spread to China,the biggest centre for oil demand growth,said Gordon Kwan,head of energy research at Mirae Asset Management in Hong Kong.

Brent crude fell 72 cents to $102.63 a barrel by 0649 GMT,after the front-month contract fell 4.85 per cent last week,its biggest percentage drop since the week to Nov. 18.

US crude was down 63 cents at $92.90 a barrel. The benchmark lost 5.9 per cent in the previous week,its biggest percentage weekly loss since late September.

Both benchmarks had fallen by about a dollar earlier,after investors drove up the greenback on news that North Korean leader Kim Jong-il had died,sparking immediate concern over who is in control of the reclusive state and its nuclear programme.

In light of uncertainties about what would follow after his death and what implications it would have on Asia,the initial reaction is to seek safe-haven in the dollar,said Takao Hattori,an analyst with Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

Story continues below this ad

A firmer greenback makes dollar-denominated assets like oil more expensive when purchased in other currencies. The dollar rose by as much as 0.3 percent against a basket of currencies following the North Korean news,before paring gains to around 0.1 per cent by 0753 GMT.

CHINA SUPPORTS

Oil received support from fresh signs that China would be able to steer its economy into a moderate slowdown.

China has enough tools to provide more liquidity and avoid a hard landing,which will be bullish for oil prices,said Kwan.

China’s housing inflation hit its lowest this year in November,the latest sign that Beijing’s efforts to fight rising prices are paying off as it steadily eases monetary policy to ensure a soft landing.

Story continues below this ad

The falling home price,in tandem with November’s sharp drop in consumer inflation from July’s three-year peak,enables Beijing to tilt its policies more towards safeguarding economic growth,away from its top priority of calming inflation just a few months ago.

China’s central bank cut reserve requirements for commercial lenders late last month for the first time in three years,and could do so again later this week,Kwan said.

IRAN WATCH

Market participants will be watching events in Iran this week amid the lingering prospect of sanctions over Tehran’s nuclear program choking off supplies from the world’s fifth-largest crude oil exporter.

Markets will be keeping a close eye on developments regarding Iran,but at this stage it hasn’t had much impact on prices,said analysts at ANZ Bank in a research note.

Story continues below this ad

Indian companies have begun talks with alternative suppliers to slowly replace Iranian oil,while South Korea set new sanctions on Tehran,banning fresh investment in its oil and gas sectors and blacklisting additional Iranian firms and personnel.

These actions came after the US House of Representatives passed legislation on Wednesday that would expand sanctions on Iran,cracking down on a wider range of energy issues and closing some loopholes in existing energy and financial sanctions.

The threat of a major supply disruption from OPEC’s second biggest producer has helped support oil prices in recent weeks.