Brent crude dropped below US$103 per barrel on Thursday and prices were headed for their biggest monthly percentage drop in two years, as investors made a beeline for the exits with the euro zone debt crisis grinding on.
Surging borrowing costs for Spain and Italy and signs that Greece's anti-austerity parties were gaining in opinion polls ahead of elections in June muddied the demand outlook for commodities, forcing investors to cash out.
"The situation in Spain at the moment is untenable, not only is there concern over the state of its banking sector but there is little confidence its government will actually be able to bail them out," said Michael Creed, an economist at the National Australia Bank.
London Brent crude for July delivery was down 21 cents at US$103.26 per barrel by 0322 GMT, after hitting a low of US$102.90 earlier in the session. Prices were on track for a more than 13 percent loss in this month, biggest since May 2010.
US crude for July delivery was down 15 cents to US$87.67 per barrel. Prices were headed for a steep loss of more than 16 percent this month - worst since late 2008.
Risk aversion gripped financial markets across the board, with Asian equity markets, copper and euro all sliding as problems in Spain and fears of a messy Greek exit from the single currency bloc raised contagion fears.
A caution by Spain's central banker that Madrid will miss deficit targets this year pushed Spanish 10-year yields close to 7 percent, a level seen as unsustainable and which could push Spain to seek a bailout.
"Frankly I'm not sure if there is enough in the bailout fund to cover the Spanish banks," Creed said.
"We need to see the European Central Bank taking a more proactive stand in this kind of environment, the market needs reassurance."
Adding to the nervousness in markets were latest Greece polls showing parties for and against a bailout neck-and-neck to each another ahead of a June 17 election that may decide whether Greece remains in the euro.
US crude prices have been weighed down by a climb in domestic oil stockpiles. In the nine weeks to May 18, crude inventories have risen 36m barrels, data from the US Energy Information Administration (EIA) showed, the largest nine-week stock build on record.
According to a Reuters poll, stockpiles are expected to see a 10th consecutive weekly rise for the week to May 25.
Data released by the American Petroleum Institute late Wednesday showed an unexpected 353,000 barrel drawdown for last week. The market is now eyeing data from the U.S. EIA scheduled for release later in the day.
From / Arabian Business