Eurozone ministers are expected to approve rules for region's $587bn bailout fund
Brent fell below $109 on Tuesday after posting its largest
gains in a month in the previous session as investors took profits and watched
keenly to see how Europe would tackle its debt crisis at a meeting later in the
At the meeting, euro zone finance ministers are expected to
approve detailed rules for the region's €440bn ($588m) bailout
fund to help attract cash from private and public investors to its
Brent crude fell 31 cents to $108.69 by 0804 GMT, after
posting gains of more than 2 percent in the previous session - its biggest
single day rise in a month.
"Oil prices coming off could be also be due to some
profit taking," Natalie Robertson of ANZ said of the day's earlier losses.
"But I think the market tonight will be more focused on developments out
of Europe and that would offset any changes in supplies."
The euro zone's debt crisis has become the biggest threat to
the global economy and a break up of the currency zone can no longer be ruled
out, the Organisation for Economic Cooperation and Development said on Monday,
slashing its forecasts and urging the European Central Bank to play a bigger
role in defusing the crisis.
The euro zone has already entered a mild recession but much
worse could follow unless policy makers take decisive action to get ahead of
the market, it added.
US crude fell 80 cents to $97.41 a barrel after gaining more
than one percent on Monday, weighed down by Fitch Ratings' revision of the US
credit rating outlook to negative and expectations for an increase of 1.0
million barrels in domestic crude stocks.
The ratings agency gave the United States until 2013 to come
up with a credible plan to tackle its ballooning budget deficit or risk a
downgrade of the country's coveted AAA rating.
While Europe will play a key role in influencing prices,
sanctions against Syria and Iran over human rights violations and a nuclear
program, respectively, are expected to support oil prices.
"Oil prices will be supported because there are
geopolitical tensions over Iran's nuclear program. That would provide a floor for
prices," Robertson said.
Paris has argued that Europe should ban Iranian oil as part
of Western steps to ratchet up pressure on the country, following a report by
the International Atomic Energy Agency that suggested Iran had worked on
designing an atom bomb.
Diplomats say EU powerbrokers Britain and Germany support
the proposal, although London is still doing an analysis of the costs. But some
EU states, led by crisis-stricken Greece, have expressed concerns about the
economic impact of an oil embargo.
"Syria and Iran are bullish factors, but so far there
have been no disruptions. If some disruptions were to take place, that can push
the prices up by $5 to $10," said Ken Hasegawa, commodity derivatives
manager at Newedge Brokerage in Tokyo, said.