SINGAPORE (Reuters) - Brent oil dropped to below $106 per barrel on Wednesday, on track for its biggest monthly decline in two years as a worsening euro zone debt crisis slashed risk appetite.
Worries about the debt-laden single currency bloc heightened after Egan-Jones Ratings cut Spain’s credit rating for the third time in less than a month as the country’s borrowing costs spiralled towards unsustainable levels, sending the euro to a two-year low and equities sliding.
“There is definitely renewed concern of a contagion in the euro zone with the debt crisis. There is real pressure now on Spain’s banks, it’s a crisis of confidence,” said Ric Spooner, chief market analyst at CMC Markets.
Brent crude eased 74 cents to $105.94 per barrel by 0720 GMT, and down 11.3 percent so far in May.
U.S. crude fell 75 cents to $90.01. For the month, WTI crude has fallen 14.2 percent, with a surge in domestic stockpiles dragging down prices. The last time U.S. crude fell about the same level was in May 2010.
Crude stocks at Cushing, Oklahoma storage hub, delivery point of the U.S. crude oil future contract, have risen to a record high of 46.8 million barrels.
But oil’s losses may be checked by supply concerns as Iran’s dispute with the West over Tehran’s nuclear program remains unresolved.
“Iran continues to remain a significant factor but for the moment, with a short to medium term outlook the focus is on Europe and the demand side picture if the crisis continues to deteriorate,” Spooner said.
“We have been building inventories since Libya’s production went offline last year, and with Saudi Arabia pumping more, there is a big enough buffer to deal with any sudden disruption of supplies.”
Tehran is refusing to grant United Nations inspectors access to a facility at Parchin which is suspected of being used to develop nuclear weapons. Iran says its aims are entirely peaceful.
Iran has ramped up its production of low-enriched uranium, in the last five years and it could be used for at least five nuclear weapons if refined further, the U.S.-based Institute for Science and International Security said.
Editing by Himani Sarkar and Manolo Serapio Jr.