Oil slides on eurozone concerns

Oil edged lower on Monday on pressure from revived concerns about a eurozone economic slump and political uncertainty, while a North Sea production problem and worries about Iran and potential supply disruptions limited losses.

Eurozone business contraction deepened at a faster pace than expected in April, with the Purchasing Managers Index for the bloc’s dominant service sector falling to a five-month low, against forecasts that it rose.

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Politics added to the uncertainty after the Socialist challenger edged out French President Nicolas Sarkozy, leaving the two to fight a 6 May election run-off, and the Dutch government was set to resign in a crisis over budget cuts.

The signs of eurozone economic and political turmoil sparked a “risk-off” trade, pushing global equities, the euro and key industrial feedstock copper lower and sending investors in the direction of perceived safe-haven assets such as the dollar and US Treasuries.

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Production stopped at the North Sea Buzzard oil field, Britain’s largest, following a problem with a gas compressor over the weekend. Output is expected to “ramp up” over the next 24-48 hours according to a spokeswoman for operator Nexen .

“The North Sea Buzzard news helped pull Brent off its lows and probably kept it from dropping as much as US crude,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

Brent June crude slipped 5 cents to settle at $118.71 a barrel, having fallen to $117.21 intraday but finding support ahead of a test of 100-day-moving-average support at $116.55.

Front-month Brent has not been below the 100-day moving average since late January.

US June crude fell 77 cents to settle at $103.11 a barrel, after falling below the 100-day moving average of $102.02 to an intraday low of $101.82.

That test of the moving average, the U.S. June contract’s debut in the front-month spot and another test of resistance for the Brent premium to its US counterpart near $16 a barrel helped explain the larger price slip by the US crude contract.

The Brent crude spread increased to $15.60, based on settlement prices, having reached $15.78.

“June’s moving into the front month so it is testing support again around the 100-day moving average,” said Chris Dillman, analyst at Tradition Energy.

Crude trading volumes remained light, assisting price movement, with Brent outpacing US volumes. That was no surprise as the market moved primarily on news from Europe, but turnover for both contracts stayed below 30-day averages.

US gasoline futures managed a gain, after slumping 20 cents last week and with the front-month May contract still on the board until its 30 April expiration.

Oil markets continued to be buffeted by competing concerns about slowing economic growth and potential for supply disruptions after US and European sanctions on Iran aimed at curbing its nuclear program by limiting oil exports and revenues helped lift crude prices sharply in the first quarter.

The gloomy economic news from Europe arrived a day before a two-day US Federal Reserve policy meeting, with the central bank expected to steer clear of further bond purchases even after disappointing US jobs growth in March.

Investors also await weekly reports on US oil inventories, starting with the report from the American Petroleum Institute on Tuesday.

US crude stockpiles were expected to have risen last week, a Reuters survey of analysts on showed.

Iran and sanctions

Iran’s foreign minister said Tehran is optimistic that a next round of talks in Baghdad in May will make progress toward resolving the dispute with the West over the Iranian nuclear program.

But as sanctions curb crude exports, Iran has been forced to deploy more than half its fleet of supertankers to store oil at anchorage in the Gulf.

China halved its Iranian crude imports and South Korea’s imports fell 40 percent in March compared with the year-earlier period, further signs of Iran’s problems placing crude into Asia, traditionally its primary region for crude oil exports.

Reuters