Oil reflects concern about whether the Greece debt crisis will be resolved

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Monday June 27, 2011, 5:02 pm EDT
By Jonathan Fahey, The Associated Press

NEW YORK, N.Y. - To discern the direction of oil prices, look to Europe.

Oil prices wavered below US$91 a barrel Monday as the market waits to see if Greece receives a new round of international aid.

The Greek parliament must pass a new $40-billion austerity package this week so the European Union and the International Monetary Fund release the next instalment of Greece's $156-billion bailout loan. Otherwise, the country could become the first in the euro zone to default on its debts — a potentially disastrous event that could drag down European banks and affect other financially troubled European countries.

Benchmark oil for August delivery fell 55 cents to settle at $90.61 on the New York Mercantile Exchange. It recovered some earlier losses on reports that French banks had agreed to accept slower repayment of Greece's debt.

"We're going to see a lot of nervous trading over Greece until we see a resolution," said Phil Flynn, an oil analyst at PFG Best.

Also Monday, the U.S. Commerce Department said that U.S. consumer spending was unchanged in May, the worst result since September 2009. When adjusted for inflation, spending dropped slightly.

Flynn said while the consumer spending report did show weakness in the U.S. economy, traders were not surprised by the report.

"More of the focus is on Europe than it is on the U.S. right now," he said.

In London, Brent crude for August delivery rose 87 cents to $105.99 a barrel on the ICE Futures exchange.

Crude oil fell sharply last week after the International Energy Agency said it will make 60 million barrels available over a 30-day period, half of which will come from the U.S. Strategic Petroleum Reserve.

This helped extend a decline in U.S. retail gasoline prices. The nationwide average for retail gasoline fell to $3.57 per gallon Monday according to AAA, Wright Express and the Oil Price Information Service. Prices have dropped 24 cents in a month.

This past weekend was the least expensive at the pump for drivers since March 26-27.

Still, gas is 81 cents higher than a year ago, when oil was around $78 per barrel. And some analysts said the recent decline in oil prices could be temporary.

According to the price-tracking website Gasbuddy.com, the average gasoline price in Canada was about C$1.22 a litre — a big drop from last month's near-record high of about $1.34.

"We doubt the world's energy supply will be solved by such a paltry sum," energy consultant Stephen Schork said in a report. "(The IEA's) move might assuage the market this summer, but it is by no means a long-term fix."

Others, however, noted that because other crude exporters like Saudi Arabia were maintaining crude output levels, supplies were likely to rise.

"The countries in the Gulf region apparently do not want to restrict production and this should mean a marked oversupply on the oil market in the coming weeks, which should push prices down further," said a commodity report from Commerzbank in Frankfurt.

Analysts also said oil prices were under pressure because speculators, seeking safer destinations for their money, have begun to back away from bets that prices will rise.

In other Nymex trading in July contracts, heating oil rose 1.25 cents to $2.7814 a gallon while gasoline rose 2.85 cents to $2.7444 a gallon. Natural gas futures rose 2.7 cents to $4.256 per 1,000 cubic feet.