Oil prices declined this afternoon as traders feared that Italy could soon find itself on the brink of a default after seeing its borrowing costs reach seven percent in response to Silvio Berlusconi’s decision to resign.
The Italian PM said he would step down after the parliament passed austerity measures soon after failing to secure an absolute majority in a budget vote on Tuesday.
Ireland, Portugal and Greece saw their yields top seven percent before receiving financial aid from the EU as borrowing money in the markets at that rate was too expensive.
There are concerns that the EU may not be able to provide enough financial aid to bail out Italy, the euro zone’s third largest economy, which could trigger a financial meltdown in Europe and reduce energy demand.
Futures for crude oil received some support from a positive inflation update that came out in China early today.
The world’s second largest energy consumer revealed that growth in consumer prices fell from 6.1 percent in September to 5.5 percent last month as the government’s monetary tightening measures that included three rate hikes this year alone took effect.
The data gave investors hope that with the inflation rate in decline, China will relax its monetary policy to stimulate economic growth.
In other news, the International Energy Agency (IEA) said the world needs to provide more support for the oil and gas industry of the Middle East – North Africa region, warning that a decline in investments into MENA by a third would drive the price of oil to US$150 per barrel in the near term.
December Brent crude dropped US$1.91 to US$112.84/barrel on the ICE Exchange this afternoon.
Today’s top risers in the oil and gas sector were:
TXO (LON:TXO), up 10 percent ay 0.615pence
Sefton Resources (LON:SER), down 5.5 percent at 3.16 pence