Oil’s Fall Deepens on Euro Zone Worry, Supply

Brent crude oil slipped over a dollar towards $111 on Wednesday, extending its longest losing streak in nearly two years, as political turmoil in the debt-laden euro zone deepened worries about prospects for fuel demand.

Rising oil stocks in the United States, and increased production from Saudi Arabia have also helped push oil down from levels near $126 per barrel in April.

“The weakness in oil was the result of higher Saudi production and concerns for the U.S. economy and a slow-down in China,” said Christopher Bellew at Jefferies Bache.

London Brent crude was down 77 cents to $111.96 a barrel, dropping for a sixth straight session, its longest losing streak since the middle of 2010.

U.S. light, sweet crude was last at $95.62, down $1.39.

This week’s fall has been largely caused by renewed uncertainty about the future of the euro zone.

In Greece, a highly fractured parliament struggled to cobble together a coalition, with the Leftist candidate for prime minister opposing a bailout deal crucial to the economy.

This stoked fears about whether the euro zone would be able to pull itself out of a debt crisis, weighing on equities and commodities across the board.

Leadership changes in France and Greece fanned worries that the political uncertainty could threaten austerity plans seen by some as key to tackling the euro zone debt crisis.

However, while data from major global economies has been disappointing recently, Bellew highlighted data from Germany on Wednesday showing exports and imports both rose to record monthly levels in March.

“It seems to me as if Brent will hold above $110 per barrel, and maybe rally to the $116 area if the speculators come back into the market.”

“The market became overly bearish very quickly and the momentum was a result of what happened in Europe,” said Jonathan Barratt, chief executive of BarrattBulletin, a Sydney-based commodity research firm.

“People are becoming too pessimistic about how they are going to resolve it and this sentiment will continue to be bearish for commodities.”

US Crude Stocks Up

Higher OPEC production and rising crude stockpiles globally also weighed on oil prices.

Investors are now eyeing U.S. government data due later on Wednesday to confirm industry statistics that showed a larger-than-expected rise in crude inventories, already at their highest level since 1990.

In the United States, the world’s largest oil consumer, domestic crude stocks jumped 7.8 million barrels in the week to May 4, according to industry group the American Petroleum Institute. This is nearly four times the forecast in a Reuters poll of analysts.

Saudi Oil Minister Ali al-Naimi reiterated on Wednesday that there was a surplus of oil in the market, following his earlier comments that the world’s top exporter is pumping around 10 million barrels per day and is storing 80 million barrels to meet any sudden disruption in supplies.

“In light of the current economic environment, it appears that the Kingdom is still concerned that high oil prices will eat into demand and could dampen any economic recovery,” JBC Energy said in a note to clients.

Higher production from Saudi Arabia has partly filled a supply gap caused by lower imports from sanctions-hit Iran. India has joined other Iranian crude buyers in Asia to cut back imports from the Islamic Republic.

CNBC