Oil fell as a stalemate between European policy makers and Greek bondholders over debt relief increased concern that the euro-zone debt crisis will spread.
Futures dropped as much as 1.3 percent after European finance ministers balked at putting up more public money for Greece, calling on holders of Greek debt to provide greater relief. The International Monetary Fund cut its forecast for the global economy as Europe slips into a recession and growth cools in China and India.
“The problems with Greece and the bondholders have yet to be resolved, which continues to be a major worry,” said Chris Dillman, an analyst and broker at Tradition Energy in Stamford,Connecticut. “The euro-zone concerns are sending equities lower and the dollar is stronger, which is putting downward pressure on oil.”
Crude oil for March delivery fell 64 cents, or 0.6 percent, to $98.94 a barrel at 11:04 a.m. on the New York Mercantile Exchange. The contract slipped as much as $1.33 to $98.25. Prices are up 13 percent from a year earlier.
Brent oil for March settlement dropped 51 cents, or 0.5 percent, to $110.07 a barrel on the London-based ICE FuturesEurope exchange.
The Standard & Poor’s 500 Index declined 0.4 percent and the Dow Jones Industrial Average fell 0.4 percent.
The euro slipped as much as 0.5 percent to $1.2954. A weaker common currency and stronger dollar decrease the appeal of commodities to investors.
“The European debt crisis has crept back up into the forefront with the Greek concerns,” said Phil Flynn, vice president of research at PFGBest in Chicago. “The lowering of the IMF growth forecast is playing into demand fears.”
The world economy will expand 3.3 percent this year and 3.9 percent in 2013, compared with September forecasts of 4 percent and 4.5 percent, the IMF said. The euro area may enter a “mild recession” this year and contract 0.5 percent compared with a previous estimate of a 1.1 percent expansion. The U.S. outlook was held at 1.8 percent growth.
China’s estimated expansion was cut to 8.2 percent from 9 percent. India is expected to grow 7 percent in 2012, 0.5 percentage point less than in September forecasts.
Crude prices climbed earlier as Iran criticized a European embargo on its crude exports without repeating threats to disrupt shipping in the Persian Gulf.
European Union foreign ministers agreed to ban oil imports from Iran starting July 1 as part of measures to ratchet up the pressure on the Persian Gulf nation’s nuclear program, the 27-nation bloc said in a statement yesterday.
The EU will freeze assets of the Iranian central bank in Europe as well as of eight other entities and ban the trade in gold, precious metals, diamonds and petrochemical products fromIran, the statement said.
Iranian Vice President Mohammad Reza Rahimi threatened on Dec. 27 to block the Strait of Hormuz, the transit route for about a fifth of the world’s oil, if the EU banned the country’s oil exports.
“There’s been a lot of talk from Iran but no concrete action,” Flynn said. “There’s been a sigh of relief since the sanctions were announced and there’s no sign that the Strait of Hormuz will be blocked.”
U.S. oil inventories probably rose by 1.5 million barrels last week, according to the median estimate of 11 analysts polled before a weekly Energy Department report tomorrow. Gasoline supplies rose 2 million barrels, the survey showed. Stockpiles of distillate fuel, a category that includes diesel and heating oil, declined 375,000 barrels.