Oil hovers near $103 amid EU economy worries

The Associated Press

LONDON (AP) — Oil prices hovered above $103 a barrel Tuesday as financial markets stabilized after sharp losses the previous day, when investors worried Europe's debt crisis will undermine economic growth and energy consumption.

Benchmark oil for June delivery was up 10 cents to $103.21 a barrel by early morning European time in electronic trading on the New York Mercantile Exchange. The contract fell 77 cents to settle at $103.11 in New York on Monday.

Brent crude for June delivery was down 11 cents at $118.60 per barrel in London.

Although small gains in stock markets helped oil prices on Tuesday, traders remained concerned that fiscal austerity measures designed to lower European debt levels may trigger a recession this year. On Monday, a survey showed the eurozone's manufacturing and services sectors unexpectedly fell in April.

"Developments in the euro area continue to drive sentiment," said Gerald Lyons, chief economist at Standard Chartered. "The biggest threat facing the world economy is a collapse of one or more euro area economies."

Crude has traded between $100 and $110 for most of this year as the U.S. economy improved more than expected but crude demand remained weak.

Some analysts are optimistic that crude demand in the U.S. and China, the world's two largest oil consumers, is about to rebound. Economic sanctions by Western powers against Iran may also cut crude output from the OPEC member, tightening global supplies.

"We're looking at the bottom in U.S. gasoline demand, the bottom of the China slowdown and we are just starting to feel the pinch on Iranian sanctions," said Carl Larry at Oil Outlooks and Opinions. "Outside of another economic meltdown, there's not much that we can see that is going to bring this oil price back down."

In other energy trading, heating oil was down 0.3 of a cent to $3.14 per gallon and gasoline futures fell 1.9 cents to $3.17 per gallon. Natural gas rose 1.7 cents at $1.99 per 1,000 cubic feet.