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Jun 27, 2012, 01.07 PM IST
Brent crude fell below USD 93 per barrel on Wednesday as heightened concerns that European leaders would fail to solve 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 contagion from the 30-month long debt crisis.
Brent crude had fallen 25 cents to USD 92.77 per barrel by 0632 GMT. US crude was at USD 79.13, down 23 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 which are favoured by France, Italy and Spain, saying that Europe would not share total debt liability "as long as I live".
Still, lower North Sea output due to a workers' strike in Norway was expected to limit losses.
Brent on Tuesday posted its largest daily percentage gain since March 1, settling above USD 93 for the first time in a week after Norway's Statoil ASA
Brent's price jump stretched its premium over West Texas Intermediate (WTI) prices to more than USD 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 cast a slightly 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% 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 a 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.
Tags: Brent crude, per barrel, European leaders, debt crisis, North Sea oil supply, US crude, American Petroleum Institute, API, OPEC
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