Oil hits 2012 low on Eurozone turmoil

Oil prices slipped below $107 a barrel yesterday and hit a 2012 low as investors fought shy of riskier, growth-oriented assets on fears that Greece would leave the euro, and after a downgrade of 16 Spanish banks by Moody\'s added to the contagion gloom. Brent crude was down 51 cents to $106.98 a barrel by 1122 GMT after earlier slipping to its lowest level for the year at $106.40. US crude was up 16 cents to $92.72. \"The driving factor is still what is going on in Europe with the downgrades of the Spanish banks and very negative sentiment towards risk investments,\" said Eugen Weinberg, an analyst at Commerzbank in Frankfurt. \"It\'s not surprising to see further falls in Brent today.\" The euro fell to fresh four-month lows as the dollar strengthened, putting commodities priced in dollars under more pressure. Weinberg said that although the Spanish bank downgrades and Greece\'s failure to find a consensus in the first election round had been anticipated, the potential fallout had not been fully priced in. \"Once it happens, the market understands how serious things are. The risks are not yet completely reflected in the price.\" The lack of a Greek government is raising fears about a disorderly exit from the euro as without a government it cannot implement austerity measures in exchange for rescue funds. Michael Poulsen, an oil analyst at Global Risk Management put the cost of such an exit at 5 per cent of Eurozone GDP, or about $1 trillion. Analysts were not optimistic about the prospects for recovery in the event of a Greek exit. Michael McCarthy, a markets strategist at CMC Global Markets in Sydney, said further credit downgrades would weigh on demand projections and argued there was potential for \"structural destruction\". \"It\'s the fear factor that\'s driving Brent,\" agreed Guy Wolf, macro strategist at Marex Spectron in London. \"Finally Europe has reached the key Greece in/Greece out moment.\" If Greece leaves, this could trigger bank runs in Italy and Spain, he added, seeing the possibility of a major impact on growth. Analysts at Bank of America Merrill Lynch said the contagion effect, whereby other countries have to leave as well, could trigger a contraction of 10 per cent in GDP and a 2 million bpd fall in OECD European oil demand. They see Brent prices falling as low as $60 a barrel in the event of a broader Eurozone break-up.