Oil prices fall after OPEC trims demand forecast

Friday, October 7, 2011, Vol. 35, No. 40

SINGAPORE (AP) — Oil prices hovered above $85 a barrel Tuesday in Asia, pausing after gains of 13 percent over the past week that were fueled by hopes Europe will contain its debt crisis and avoid a global recession.

Benchmark crude for November delivery was down 17 cents at $85.24 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose $2.43 to settle at $85.41 in New York on Monday.

Brent crude was down 20 cents at $108.75 a barrel on the ICE Futures Exchange in London.

Investor optimism was bolstered after German Chancellor Angela Merkel and French President Nicolas Sarkozy said Sunday they would finalize a "comprehensive response" to Europe's debt crisis by the end of the month.

Concern that a possible debt default by Greece could lead to a banking crisis had sent crude to a 12-month low of $75 last week. But traders now expect European leaders to agree to pump more capital into the region's banks, which would likely limit the possible damage of a default.

"A week ago, traders and investors saw Europe melting down," Cameron Hanover said in a report. "But Germany and France have agreed to contain the Greek contagion. The end-result is that confidence has been restored."

Oil traders have also taken their cue from surging stock markets. The Dow Jones industrial average jumped 3 percent Monday and Asian stock markets gained Tuesday.

Analysts remain concerned investors will be disappointed if Europe's plan to protect its banks doesn't prevent a global recession or financial crisis.

"If policy fails, investors must expect further setbacks in the financial markets," said Philipp Baertschi, chief strategist at Bank Sarasin.

In other Nymex trading, heating oil fell 0.7 cent to $2.90 per gallon and gasoline futures added 0.5 cent to $2.70 per gallon. Natural gas gained 0.5 cents to $3.55 per 1,000 cubic feet.