Crude oil futures fell below $98 a barrel on Tuesday on fears the euro zone debt crisis will worsen and hurt the global economy, threatening demand growth, while OPEC is seen likely to keep production levels unchanged.
Optimism over a bailout for Spain's troubled banks faded because of concerns about the package's impact on public debt, while upcoming Greek elections on Sunday compounded worries the crisis in Europe will deepen.
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Prices moved up from lows earlier in the day, however, after U.S. stocks opened slightly higher and the euro rose against the dollar and yen in choppy trading.
Brent crude futures were down 69 cents to $97.31 by 1411 GMT. Earlier in the session, prices fell as low as $96.62 a barrel, close to this year's low of $95.63 struck on June 4.
U.S. oil rose by 10 cents to $82.82 a barrel after hitting a nine-month low at $81.07.
"It is a reaction to the euro firming up slightly and the stock markets' holding steadier," said Christopher Bellew, senior broker at Jefferies Bache.
Crude futures on Monday rallied more than $2 after euro zone finance ministers agreed on the loan to Spain to tackle the problems of debt-stricken banks. But doubts about the deal emerged overnight, rekindling concerns that Madrid's financial woes would worsen.
The EU has already begun discussing contingency plans for a Greek exit, including withdrawal limits at bank automated teller machines.
Cyprus, which is heavily exposed to Greece, said on Monday that it may become the fifth member of the currency bloc to apply for an international bailout.
OPEC OUTPUT TARGET
Oil is also under pressure following comments that top exporter Saudi Arabia intends to keep production at current levels, despite a recent fall in crude prices.
Saudi Arabian Oil Minister Ali al Naimi said on Tuesday he was happy with OPEC's current oil output target. But OPEC's price hawks have called on Saudi Arabia to rein in excess production to stem a slide in oil prices.
The Organization of the Petroleum Exporting Countries (OPEC) meets on Thursday in Vienna to chart production policy. Supply from the 12-member group, running nearly 2 million barrels per day above a self-imposed production ceiling of 30 million bpd, is at its highest since 2008.
"The oversupply will keep going into countries' inventories," said Carsten Fritsch, an oil analyst at Commerzbank, "OPEC is unlikely to reduce production. But the hawks will want to cut, so there is a risk of no common agreement, like last June."
OPEC is producing above its latest demand forecast. OPEC sees demand for its oil as unchanged at an average of 30.74 million barrels per day in the second half of the year, its monthly report said.
Saudi Arabia has lifted output sharply to 10 million barrels a day, a 30-year high, to prevent inflated fuel prices from choking off global growth and to help offset any disruption in supplies from the Middle East, like Iran.
However while OPEC looks to remain steady, North American shale oil projects and production could be curtailed if WTI prices remains weak for a prolonged period.
"Some high cost projects are at risk of being put on hold at these prices. There will be no short or medium impact on current marginal production," said Fritsch at Commerzbank.
"But the price tipping point would be around $80 a barrel. Shale producers look at WTI, and we're not far away from that level now."
Industry data due later today from top consumer the United States will help provide further direction to prices.
U.S. crude supplies were forecast to have fallen last week for the second straight time, due to lower imports, a preliminary Reuters poll showed.