Oil falls below US$74 on EU bank debt worries

Most major Asian and European stock markets fell Wednesday following a 1 percent slide in the Dow Jones industrial average the day before, when reports claimed that EU stress tests of banks in July understated some lenders' holdings of potentially risky debt. Germany's top 10 banks will have to raise as much as US$135 billion to meet new capital requirements, reports said.

Oil traders often look to stock markets as a barometer of overall investor sentiment.

“It seems that the renewed concerns over the European banking sector and the record high levels in oil inventories are going to be the main focus this week, while the strengthening U.S. dollar could add further pressure to the oil market,” said a report from Sucden Financial Research in London.

A stronger dollar makes crude more expensive for investors holding other currencies.

Some analysts are concerned that slowing U.S. economic growth in the second half could undermine crude demand. Bank of America Merrill Lynch expects crude to average US$78 a barrel in the second half and US$85 next year.

“Following robust increases in oil demand over the past 12 months on a stimulus-driven rebound, we now see some downside risk as slower growth sets in and developed countries' oil inventories remain high,” Bank of America analysts said in a report.

The market will also be watching the release of data on U.S. crude stocks, which comes a day later than usual because of the Labor Day holiday.

American Petroleum Institute figures will be released later Wednesday while the Energy Department's Energy Information Administration will put out its weekly supply picture — the market benchmark — on Thursday

Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., expect a draw in crude oil stocks of 730,000 barrels and a drop of 820,000 barrels in gasoline supplies.

In other Nymex trading in October contracts, heating oil fell 0.72 cent to US$2.0671 a gallon and gasoline dropped 1.10 cents to US$1.9219 a gallon. Natural gas for October delivery gained 0.5 cent to US$3.857 per 1,000 cubic feet.

In London, Brent crude was down 47 cents at US$77.27 on the ICE Futures exchange.

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