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Oil slips below $85 as markets await European has plan to contain debt crisis
Oil prices slipped below $85 a barrel Tuesday, as doubts surfaced about expanding a bailout plan in Europe and OPEC cut its estimate for world oil demand.
By early afternoon in Europe, benchmark crude for November delivery was down 63 cents at $84.78 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.
In London, Brent crude was down 20 cents at $108.75 a barrel on the ICE Futures exchange.
Oil prices were lower after gains of 13 percent over the past week ' fueled by hopes Europe will contain its debt crisis and avoid a global recession.
On Tuesday, however, it seemed that support for the bailout plan, which needs approval from all 17 members of the European Union using its common currency, could be held up by a political crisis in Slovakia.
"Market optimism could be put to the test today when the Slovakian parliament votes on the planned extension of the eurozone bailout package; agreement is far from certain," said a report from Commerzbank in Frankfurt. "We therefore regard the recent price rise as temporary."
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.
Oil traders have also taken their cue from surging stock markets. The Dow Jones industrial average jumped 3 percent Monday, but stock markets in Europe were lower 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.
Prices were also cooled by a report from the 12-nation Organization of the Petroleum Exporting Countries, which projected world demand to be up by nearly 1 million barrels a day this year over last. That, however, was 180,000 barrels a day less than its previous estimate.
OPEC, representing most of the biggest crude producers, also estimated no growth in demand for its products next year, expecting demand at 29.9 million barrels a day for both 2011 and 2012.
In other Nymex trading, heating oil fell 2.47 cents to $2.8792 per gallon and gasoline futures lost 1.07 cents to $2.6846 per gallon. Natural gas retreated 0.7 cent to $3.534 per 1,000 cubic feet.
Alex Kennedy in Singapore and George Jahn in Vienna contributed to this report.