Oil steadied on Monday as short-covering countered an easing of concerns that Tropical Storm Debby would batter U.S. production platforms in the Gulf of Mexico and fading hopes that a European summit would produce a viable solution to the region's debt crisis.
Prices traded lower for most of the U.S. session as forecasts showed Debby, the first named storm of the 2012 Atlantic hurricane season to threaten the Gulf, turning toward Florida and away from the region that is home to roughly 20 percent of U.S. oil production.
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Oil companies had shut down over 44 percent of oil production in the Gulf on Monday after earlier forecasts showed the storm heading into the region, but producers were already restoring workers to platforms and returning output as the threat waned. Debby's threat to the Gulf had pushed oil prices up about 2 percent on Friday.
Investors were also cautious due to worries that the European Union summit this week would do little to calm market anxiety about the euro zone debt crisis. As expectations of positive action from EU leaders have wilted, the euro fell to a near two-week low against the dollar.
"Oil continues to be weighed down by negative sentiment for global growth ahead of a two-day summit of EU leaders June 28," said Addison Armstrong, senior director of market research at Tradition Energy in Stamford, Connecticut.
Short-covering late in the day helped Brent crude settle up slightly, by 3 cents at $91.01 a barrel, off earlier lows of $89.60. U.S. crude fell 55 cents to settle at $79.21 a barrel, after hitting an early high of $80.68.
Trading volumes were light, with Brent down 20 percent from its 30-day average while U.S. crude was down 30 percent, according to Reuters data. Brokers said concerns about the European crisis had pushed many players to the sidelines.
U.S. gasoline futures rose nearly 3 percent due to concerns about supplies in the New York Harbor, the delivery point for the contract.
Sovereign debt troubles as well as shaky banks in some euro zone nations, currently ample supply from the Organization of the Petroleum Exporting Countries (OPEC) and slowing growth in the United States and China have pressured oil futures due to worries about demand.
As of last week, Brent and U.S. crude have fallen more than 25 percent from their year's high of $128.40 and $110.50 respectively achieved in March as investors have been pruning their positions in riskier assets such as oil.
SAUDI ARABIA EYED
Saudi Arabia is showing no sign of changing its policy of high output in order to support global economic growth.
The top OPEC producer is largely responsible for the extra volumes that have taken OPEC in excess of its official output ceiling of 30 million barrels per day.
OPEC ministers this month said they would adhere to the collective limit, implying a 1.6 million bpd cut from actual supply from 12 members. To achieve that, Saudi Arabia has to reduce production sharply and prospects of that appear slim.