Oil falls on fear EU summit may not resolve debt crisis

Oil fell, snapping three days of gains on concern that the European Union's debt crisis may not be resolved by the group's summit tomorrow. Crude retreated as much as 0.4 per cent as the dollar gained against the euro after a German government official said Chancellor Angela Merkel's government is more pessimistic of the outcome of an EU leaders' summit in Brussels. The dollar rose as much as 0.3 per cent against the euro, making it more expensive for holders of the European currency to purchase dollar-denominated commodities such as oil. "Investors are not convinced that the upcoming EU summit will address the sovereign debt issue and they feel that the struggling continent will show a drop in demand," said Glen Ward, head of retail derivatives at London Capital Group. Crude for January delivery on the New York Mercantile Exchange was at $101.03 a barrel, down 25 cents, at 12:54pm London time after falling as much as 42 cents to $100.86. On Tuesday, the contract added 29 cents to $101.28, the highest settlement since November 16. Prices are up 11 per cent this year after climbing 15 per cent in 2010. Brent oil for January settlement on the London-based ICE Futures Europe exchange was down 50 cents at $110.31 a barrel. The European benchmark contract was at a premium of $9.28 to New York-traded West Texas Intermediate. The spread reached a record $27.88 on October 14. Germany dampens mood The euro reversed earlier gains against the dollar after Germany rejected proposals to combine the current and permanent euro-area rescue funds as Merkel's government said it was more pessimistic on the summit's outcome. Oil rose earlier after US Treasury Secretary Timothy Geithner said in Paris he's encouraged by the progress that euro-area governments were making on ending the sovereign debt crisis and is confident they will succeed. Geithner endorsed the idea of a "fiscal compact" between euro countries. He spoke to reporters after meeting with French finance minister Francois Baroin. The European summit is "crucial," Andrey Kryuchenkov, an analyst at VTB Capital in London, said in an e-mail. "It's the last chance to convince markets the crisis can be contained by radical measures and tight budget controls." Saudi Arabia, the biggest producer in Opec, boosted output last month to the highest in more than three decades to meet demand, Ali Al Naimi, the nation's oil minister, said yesterday in Durban.