Oil refinery. Picture: THINKSTOCK
Oil refinery. Picture: THINKSTOCK

LONDON — Brent crude oil slipped below $111 a barrel on Monday as worries over Greek debt talks prompted fears that the eurozone could be heading for a deeper financial crisis, dampening oil demand.

Eurozone finance ministers and the International Monetary Fund began a third attempt in as many weeks to release emergency aid for Greece on Monday, with policymakers saying a write-down of Greek debt was off the table for now.

The fear in financial markets is that Greece will default on its debts, triggering a much more severe banking crisis and leading to the exit of other European countries from the euro.

Worries over lack of progress in US budget talks to avoid the harsh tax increases and government spending cuts due to come into effect January 1, also weighed on markets, with European equities and Wall Street falling.

Brent crude fell 50c to $110.88 a barrel by 3.00pm GMT. US crude oil futures fell 70c to $87.58.

"There are reports the Greek debt talks are not going well," said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt.

"Wall Street is opening down and other markets are following."

Phil Flynn, analyst at Price Futures Group in Chicago, agreed: "Crude is feeling some pressure from the concerns about Greece and Spain and the nagging worries about the fiscal cliff, with the stock market lower and the dollar index strengthening adding some pressure."

Egypt

Violent protests in Egypt helped support prices in early trade on Monday with investors worrying that a political crisis in Egypt over an expansion of the powers of President Mohamed Mursi, could destabilise the rest of the region.

Mr Mursi was due to meet senior judges on Monday to try to ease the dispute that has set off violent protests reminiscent of last year’s revolution, which brought him to power.

"If it is getting messy there, it could spill over into other countries — oil producers in North Africa and even into the Gulf and even countries like Saudi Arabia," Mr Fritsch said.

Investors kept a close eye on the Greek debt talks.

German Chancellor Angela Merkel said she was confident a deal could be reached, while the French finance minister said an agreement was close.

Markets also watched Washington, where the White House and Congress are set to resume budget talks this week.

They want to avoid a series of automatic tax hikes and spending cuts worth $600bn set for January, which some fear could tip the world’s biggest oil consumer into recession.

Lawmakers in both the Democratic and Republican parties have been trying to convince the public — and financial markets — that they are willing to compromise and can reach a deal before the end of the year.

Reuters