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Oil recovers to around $101 in Europe after S&P warns of EU debt downgrades
Oil prices recovered to near $101 a barrel Tuesday after falling on news that a U.S. credit rating agency may cut the debt ratings of 15 eurozone countries.
By early afternoon in Europe, benchmark crude for January delivery was up 4 cents to $101.03 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 3 cents to settle at $100.99 on Monday.
In London, Brent crude was up 52 cents at $110.33 on the ICE Futures exchange.
Standard and Poor's said late Monday it was reviewing "with negative implications" its long-term sovereign credit ratings of European countries including Germany, France and Austria.
"Systemic stresses in the eurozone have risen in recent weeks to the extent that they now put downward pressure on the credit standing of the eurozone as a whole," S&P said.
The announcement cause a temporary drop in oil prices, denting investor optimism over a proposal by the French and German leaders for tough new measures that would keep eurozone members from overspending. Prices quickly recovered, however.
Crude has jumped from $75 a barrel since October on signs the U.S. economy is improving. However, analysts expect a recession in Europe will undermine global crude demand.
"The evolving dichotomy between an unexpectedly strong U.S. economy and the increasing likelihood of a eurozone recession" will likely support U.S. benchmark crude prices and weigh on Brent, energy consultant Ritterbusch and Associates said in a report.
The diplomatic confrontation between Iran and the Western powers continued to keep a floor under oil prices.
"The U.S. has already imposed an oil embargo on Iran. Since the U.S. imports hardly any oil from Iran, however, this step has no significant impact on the oil price," said a report from Commerzbank in Frankfurt.
"Were the E.U. to follow the U.S. lead, 450,000 barrels of daily crude oil imports which the EU purchases from Iran would need to be sourced from other suppliers. Despite Libya's quicker than expected return to the oil market, this is virtually inconceivable without rising prices."
Investors are also awaiting fresh figures on U.S. stockpiles of crude and refined products.
Data for the week ending Dec. 2 is expected to show a draw of 1.3 million barrels in crude oil stocks and a build of 1 million barrels in gasoline stocks, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The American Petroleum Institute will release its report on oil stocks later Tuesday, while the report from the Energy Department's Energy Information Administration ' the market benchmark ' will be out on Wednesday.
In other Nymex trading, natural gas fell 3.6 cents t0 $3.425 per 1,000 cubic feet. Heating oil gained 2.06 cents to $3.0130 a gallon and gasoline futures added 1.09 cents to $2.6246 a gallon.
Alex Kennedy in Singapore contributed to this report.