Oil prices fall on euro tensions, IMF warning

Oil prices fell sharply Wednesday as the market fretted over heightened economic turmoil in Europe and International Monetary Fund chief Christine Lagarde's warning in China of a potential "downward spiral" in the global economy.

The heightened economic woes appeared to offset concerns on higher tensions with Iran over its nuclear program and new US weekly stockpiles statistics showing a larger-than-expected drawdown of crude stores.

New York's main contract, WTI light sweet crude for December, slid $1.06 from Tuesday's close to $95.74.

Brent North Sea oil for December delivery lost $2.69 to end at $112.31, but trimmed earlier losses after the weekly US energy report.

"Oil prices are starting to pull back as the situation in Italy goes from bad to worse," said Phil Flynn of PFG Best.

"Yesterday, Iran fears helped drive the market higher but today it is the concern of economic slowing and the fear of contagion. Maybe because the market is not convinced that the bombing of Iran is not going to happen anytime soon."

Ongoing political turmoil in Greece and Italy sent the euro plummeting and European and US stocks with it, with the biggest worries over Italian stability after yields on the country's debt rose to unsustainable levels above 7.0 percent.

The worries from Tuesday over a UN report that added new evidence to beliefs that Iran is seeking atomic weapons appeared to dissipate, despite Israel's president stoking speculation of a pre-emptive strike on Tehran's nuclear facilities.

Meanwhile a pipeline fire in southern Nigeria caused a cut in Shell's production in the country, the oil company said Wednesday.

"Some production has been shut in," Shell's Nigerian joint venture said in a statement. "A joint investigation visit planned for tomorrow (Thursday) will determine the cause and impact of the fire."

In Beijing, Lagarde said Asia was not immune to problems currently sweeping the eurozone, as she began a two-day visit to China likely to focus on the deepening debt crisis in Europe.

"If we do not act together, the economy around the world runs the risk of a downward spiral of uncertainty, financial instability," she said at the International Finance Forum in Beijing.


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