OIL fell more than US$1 yesterday, with the U.S. benchmark dropping to a more than 6-month low, as a larger-than-expected rise in crude stocks in the United States and fears of Greece’s exit from the euro zone muddied the outlook for demand growth.

    Investors are worried about the demand for oil as a prolonged political crisis in Greece may push Europe into a deeper financial mess at a time when China is slowing and the U.S. economy remains fragile. Yet, limited spare capacity and fears of a supply disruption have put a floor under prices.

    Brent crude slipped US$1.39 to as low as US$110.85 a barrel by 2:42 a.m. EDT, declining for four out of the past five sessions. U.S. oil fell US$1.68 a barrel to US$92.30 after earlier slipping to US$92.13, the lowest since November 3.

    “A further US$2-US$3 fall is acceptable under current conditions,” said Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investments. “The market has been under pressure because of weak sentiment. But if you go by supply-demand balance, oil prices are undervalued.”

    Oil may recover as the seasonally weak demand period ends and as the U.S. driving season begins, Emori said. He expects supplies to tighten because producer group OPEC and top exporters such as Saudi Arabia have very limited spare capacity as they have already ramped up output to cool prices.

    But for now, a steep increase in crude stocks in the world’s top consumer, United States, a slow but steady progress in talks with Iran over the Islamic Republic’s disputed nuclear program and uncertainty surrounding Greece are weighing on prices.

    The Chinese price watchdog last week cut gasoline and diesel prices for the first time since last October in line with lower crude prices on the global market, which has fueled mixed voices to reform current pricing mechanism for refined oil products.

    This year, the Chinese Government will propose a reform scheme for refined oil prices at the proper market timing, which means that the crude prices should keep stable or decline, said Peng Sen, former deputy chief of the National Development and Reform Commission. The new mechanism will reflect the changes of global crude prices more sensitively.

    (SD-Agencies)