Brent oil falls 2% to 3-month low on Cyprus fears

NEW YORK: Brent crude oil fell 2 percent to a three-month low beneath $108 a barrel as uncertainty over a bailout for Cyprus raised concern about the euro zone debt crisis and its impact on energy demand.
Cyprus’s parliament appeared likely to reject a divisive tax on bank deposits, pushing the island closer to a debt default and banking collapse. A German official said it was unclear when results would come.
The tax proposal, announced over the weekend as part of an economic bailout, has renewed investor concern about the euro zone, causing the euro, stock markets and oil prices to fall this week.
“The situation in Cyprus, although small, goes to show that the problems in the EU are far from over and it will exacerbate the declining demand within EU, keeping a lid on oil prices if not pushing them down,” said Natixis analyst Abhishek Deshpande in London.
Brent crude for May delivery LCOc1 was down $1.93 a barrel at $107.58 by 1743 GMT, having touched a three-month low of $107.25.
US crude for April delivery was down $1.32 at $92.42 a barrel.
That brought the spread between the two leading global oil benchmarks, Brent and West Texas Intermediate (US crude), to as narrow as $14.61 during Tuesday trading, the narrowest since mid-January.
The US dollar firmed by 0.4 percent against a basket of foreign currencies. A stronger greenback can help to weaken oil since the dollar-denominated commodity becomes more costly for holders of other currencies.
The result of the vote in Cyprus could also affect oil if it causes a swing in exchange rates, said Tony Machacek, an oil futures broker at Jefferies Bache in London.
“If the euro makes a dramatic move, it will influence oil,” he said.
The single currency was down by 0.75 percent against the dollar and traded below $1.29 for the first time since December.
Iran still presents an element of risk that could cap losses in oil markets regardless of the outcome of the vote in Cyprus, said Thorbjoern Bak Jensen of Global Risk Management.
Europe and the United States last year imposed tough new sanctions aimed at Iran’s oil trade to force Tehran to the negotiating table over its nuclear program.
Insurers have refused to cover Indian refineries that process Iranian crude imports, which may halt deliveries
But China’s biggest refiner said it did not expect to have any insurance problems and planned to use more Iranian oil in 2013.
Investors looked ahead to the weekly release of US oil inventory data at 2030 GMT from the American Petroleum Institute (API), followed by government data on Wednesday.
A further fall in crude stocks at oil futures delivery hub Cushing, Oklahoma, could strengthen West Texas Intermediate (WTI) prices against Brent.
Analysts polled by Reuters expected the data to show US crude inventories rose by 2 million barrels last week on lower refinery utilization, while gasoline stocks were seen falling by 2.5 million barrels.