Oil prices fell $2 per barrel on Tuesday on fears over last-minute debt restructuring problems for Greece and after an offer from major powers to restart nuclear talks with Tehran eased worries over supply disruptions.
Brent crude traded at slightly over $122 a barrel by 1510 GMT. US crude slid $1.60 to around $105 a barrel.
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Global stock markets and the euro fell due to worries about a global growth slowdown and over whether enough private investors would participate in a Greek debt restructuring to enable it to avert a disorderly default.
The EU’s foreign policy chief, Catherine Ashton, wrote to Iran accepting an offer to meet to discuss Tehran’s nuclear programme after weeks of consultations between Tehran and six powers — the United States, Russia, China, France, Britain and Germany.
"The risk premium on Iran was pretty high, so one should expect to see that fading because world powers are willing to talk to Iran," said Olivier Jakob, an analyst at Petromatrix in Zug, Switzerland.
"It’s much harder to launch a military strike on a country if you are talking to them," he said.
"Worries about the Greece debt swap and euro-dollar rates coming off are also pressuring (oil prices)," he said.
However in a move likely to spark new fears over an escalation of Iranian tensions, US defense secretary Leon Panetta said Washington would take military action to prevent Iran from acquiring nuclear weapons if all other options failed.
The International Atomic Energy Agency (IAEA) raised the alarm over Iran’s nuclear work on Monday, saying there were indications of activities at Parchin, an Iranian military site its inspectors want to visit.
Tehran said on Tuesday it would give the U.N. nuclear watchdog access to Parchin. It did not give a date for such a visit.
"On the one hand, the market is trading already on the expensive side. Given mixed economic data, the upside potential for prices from here should be limited," said Tobias Merath, head of Global Commodity Research at Credit Suisse Private Banking.
Politicians in China and the euro zone conceded the pace of economic growth would slow in 2012, partly because of oil prices, which are trading at an all-time high on an annualised basis.
Investors are watching out for data on China’s industrial output, investment and retail sales due on Friday to see how the world’s second-largest economy is weathering the global downturn.
Beijing cut its 2012 economic growth target to an eight-year low of 7,5% from its long-standing annual goal of 8%, raising the specter of slower oil consumption.
Evidence of sluggish demand in top consumer the United States could emerge later on Tuesday. US crude oil stockpiles have risen for three straight weeks. The weekly report from the American Petroleum Institute is due later in the day.
"We still have ongoing supply disruptions in Sudan, Syria and Yemen ... but as we turn into the second quarter and the maintenance period for refiners, which comes with a decline in crude demand, we are seeing an increase in crude supply elsewhere — meaning non-OPEC supply growth and increased OPEC production," said Harry Tchilinguirian, head of commodity market research at BNP Paribas.
A Saudi Arabian source said on Tuesday the kingdom’s production was near a record in February at 9,80 million barrels per day and would remain steady over the coming months.