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Oil Futures Fall as Euro Concerns Continue

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Crude-oil futures slid slightly Tuesday on disappointment over the Greek debt-relief deal.

Futures initially climbed 50 cents a barrel to $88.25 a barrel after an announcement of a long-sought deal to raise Greece's debt-to-gross-domestic-product ratio to 124% in 2020, up from the previous limit of 120%, opening the door to debt aid payments to Athens.

But the market was less than enthusiastic after taking a closer look at the deal. Analysts and traders said they weren't convinced that Greece could meet its new debt targets under the deal.

"The language is so strewn with, 'if this happens, if that happens,'" said Kyle Cooper of IAF Advisors in Houston of the debt-relief deal. "It seems like it's really an agreement of hope with probably not a lot of basis in reality."

The oil industry has been scrutinizing developments out of Europe, fearing that the crisis would sour the region's economy and reduce demand for raw materials such as crude oil. Market participants also worried that Europe could touch off a global downturn and further depress the appetite for oil.

Light sweet crude for January delivery settled 56 cents, or 0.6% lower Tuesday, at $87.18 a barrel on the New York Mercantile Exchange -- or more than $1 lower than the level reached in the initial euphoria over the deal. January Brent crude settled down $1.05, or 1%, at $109.87.

The pessimistic reaction to the deal also hurt the euro and boosted the dollar, which in turn weighed on oil prices. Dollar-denominated crude futures move inversely to the U.S. currency. If the dollar rises, commodity futures become more expensive for buyers in other currencies.

"When the dollar got a pop, rest of commodities took a hit," said Phil Flynn, an analyst with the Price Futures Group.

Crude prices also were hurt by a selloff in the U.S. equity markets, prompted by concerns of the impending fiscal cliff, Mr. Cooper of IAF Advisors added.

Analysts and traders don't expect things will get better for crude futures on Wednesday, that is when the U.S. government releases its oil inventories.

Crude stockpiles are expected to increase by 500,000 in the week ended Friday, according to an average of estimates from nine analysts polled by Dow Jones Newswires. Gasoline inventories are projected to grow by 900,000 barrels. Meanwhile, stocks of distillates, a category that includes heating oil and diesel, are forecast to be flat.

Front-month December reformulated gasoline blendstock, or RBOB, settled 0.58 cent, or 0.2%, higher at $2.7321 a gallon. December heating oil settled 3.71 cents, or 1.2%, lower at $3.0094 a gallon.

Copyright (c) 2012 Dow Jones & Company, Inc.

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