Brent crude hovers at $108

Oil prices keep pace amid concerns about future euro zone bank restructuring plans

Brent crude remained steady above $108 (€83.87) a barrel on Tuesday on concerns the Cyprus bailout could set a new precedent in restructuring the euro zone banking sector, again feeding worries about the Europe an economy and its demand for oil.

Head of the Eurogroup for euro zone finance ministers Jeroen Dijsselbloem, said the Cyprus bailout represented a new template for resolving regional banking problems and other nations might have to restructure banking sectors to adapt.

His comments caused the euro to reverse initial rallies and suffer heavy losses early in Asia this morning, weakening demand for dollar-denominated commodities from buyers holding the European currency.

CMC Markets chief market analyst Ric Spooner said "The process itself is a reminder that there is still a lot of risk in Europe". This seemed to be a "matter of short-term crisis management by politicians and the conflicting interests of different credit nations were in evidence," he added.

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Brent crude futures gained five cents to $108.22 a barrel this morning, after slipping to a low of $107.95 earlier. US crude increased by six cents to $94.87.

While the Cyprus bailout removed the immediate risk of a financial meltdown that could have ejected the Mediterranean island from the euro zone, investors remained worried about more potential problems for the country and euro zone.

"That sort of conflict of interest, which could have caused the Cyprus situation to get out of control, and that kind of risk, is still very much with us in Europe," Spooner said.

After reaching a deal with the European Union, the European Central Bank and the International Monetary Fund to shut down the country's second largest bank in return for €10 billion in rescue funds, the president of Cyprus assured citizens the deal was in their best interests.

But banks will remain closed until Thursday and even then subject to capital controls to prevent a run on deposits.

Oil prices were also kept in check after Saudi Arabia's oil minister Ali al-Naimi, said this morning a price around $100 a barrel was reasonable for consumers and producers, highlighting the top crude exporter's preferred range.

Brent prices in mid-February pushed above $119 a barrel to their highest level this year, before pulling back on economic concerns and improving North Sea supply.

Investors are now watching to see if the strength in the US dollar will be sustained and what happens with US oil inventories later in the day, Spooner said.

Brent's premium to US crude was trading steady at $13.37 a barrel this morning, after narrowing to $12.85 in the previous session, the narrowest since early July.

Reuters