Crude Oil Settles Down at $75 a Barrel

Light, sweet crude oil settled down around $75 a barrel on Tuesday, dragged down by concerns Europe's debt problems would hurt banks, and stirring further worries about the fragile economic recovery and struggling fuel demand.

Brent crude and the S&P 500 slipped into bear market territory, defined as a 20 percent fall from recent highs, in late afternoon trade as markets shook off earlier optimism from comments by Federal Reserve Chairman Ben Bernanke.

The Fed is prepared to take further steps to help an economy that is "close to faltering", Bernanke said on Tuesday in his bleakest assessment yet of the fragile U.S. recovery.

Fresh concerns about the euro zone crisis came as European officials postponed a vital aid payment to debt-stricken Greece, sending Brent below $100 a barrel in early trade for the first time since August.

"There are concerns that the situation in Europe is going to spread, and Bernanke said that while the Fed stands ready to help us but he was not overly optimistic," said Phil Flynn, analyst at PFGBest Research in Chicago.

"With stocks taking a turn into bear market territory, there are concerns that this signals a turn into recession , and that is not good for oil demand."

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Brent crude for November delivery [LCOCV1  101.96  ---  UNCH  (0)   ] settled $1.92 lower at $99.79 a barrel, the lowest settlement since February and off 21 percent from the 2011 peak over $127 hit in April.

U.S. light, sweet crude futures [CLCV1  77.96    2.29  (+3.03%)   ] fell $1.94 to settle at $75.67 a barrel, the lowest close since September 2010.

Traders and analysts closely eyed support around $75 for U.S. crude, noting a firm break below could signal further selling.

"I think that maybe the market overextended itself when [U.S. crude] dropped below $75 a barrel overnight, and now you are seeing some profit-taking," said Gene McGillian, analyst, Tradition Energy in Stamford, Connecticut.

Goldman Sachs, which has been typically bullish for commodities, sounded another note of caution as it cut its 2012 forecast for Brent by $10, to $120 a barrel.

Trading volumes were strong, with Brent trading 40 percent over the 30-day average and eclipsing trade in U.S. futures by 50,000 lots in late afternoon activity. U.S. oil futures traded 10 percent over the 30-day average.

OPEC inventories

Brent could also come under further pressure if output disrupted by the civil war in OPEC member Libya is restored faster than initially expected. Libya will start pumping crude at two major oilfields in about two weeks, doubling production to 700,000 barrels a day by year-end, the head of its National Oil told Reuters.

Qatar said while it was closely monitoring the impact of the economic crisis on oil demand, it did no see a need for OPEC to meet before its next scheduled gathering in December.

Traders were also cautiously watching clashes in the oil-rich Eastern Province of top OPEC crude exporter Saudi Arabia for any signs of a threat to the market.

Weekly inventory data from the American Petroleum Institute due late on Tuesday is expected to show a 2.2-million-barrel drop in crude inventories for the week to Sept. 30, according to a Reuters poll of analysts.

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