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Crude-oil futures prices settled weaker Thursday, knocked lower by concerns over the ongoing debt crisis in Cyprus and worries it could spread further into Europe.
Traders said high U.S. oil inventories and weak demand in the world's biggest oil consumer also kept prices down.
The European Central Bank has warned it won't extend beyond Monday the emergency funding that has kept Cypriot banks in operation while a bailout plan was being negotiated. The Cypriot Parliament rejected an earlier package that included a tax levy on bank accounts in the island nation, fueling fears of a run on banks, which have been ordered to close this week.
Worries about Cyprus sparked fears debt problems could flare anew elsewhere in Europe and have weighed on the euro, sending the common currency down against the dollar. In times of dollar strength, some investors using foreign currencies avoid dollar-based investments such as oil futures as they become pricier due to currency issues.
"Cyprus is completely unresolved" and people are becoming "a little more cautious" about buying crude-oil futures, said Peter Donovan, vice president at Vantage Trading.
Mark Waggoner, president of Excel Futures, said the oil market was overbought and in need of a correction. But he expects prices will recover once the market is no longer "spooked" over Cyprus. That front-month Nymex crude held above its 20-day average on trading charts of $92.29 a barrel signaled potential for recovery, he said.
Light, sweet crude oil for May delivery on the New York Mercantile Exchange settled 1.1%, or $1.05 lower, at $92.45 a barrel. May ICE North Sea Brent crude oil fell $1.25 to $107.47 a barrel.
For the second time this week, Brent's premium to the U.S. benchmark narrowed to the lowest level since last July. The spread was $15.02 a barrel Thursday.
Brent crude supplies have been rising after output snags have been resolved, and are facing increased competition from higher flows of similar grades of oil from West Africa. Shell said Thursday it was restoring shipments of Bonny Light crude after a pipeline was shut earlier this month after being damaged in an attempted oil theft.
At the same, more U.S. outlook is making its way to the U.S. Gulf refining region by pipeline and rail, where it competes directly with imports, putting further pressure on Brent and similar crudes.
The Energy Information Administration reported Wednesday U.S. crude-oil stocks fell by 1.3 million barrels last week, while analysts expected a 1.7-million barrel rise. The surprise decline followed nine straight weeks of increases that plumped up inventories by 24 million barrels.
But even with the decline, crude stocks, at near 383 million barrels, are unusually high and 12% above the five-year average for this time of year, the biggest surplus in two months. At the same time, the EIA said U.S. oil demand dropped last week to its lowest level since January.
April-delivery reformulated blendstock gasoline futures settled 4.57 cents lower, at $3.0706 a gallon, while April heating oil rose 0.42 cent, to settle at $2.8963 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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