Oil falls below $74 on EU bank debt worries

[September 08, 2010]  SINGAPORE (AP) -- Oil prices skidded below $74 a barrel Wednesday in Asia as traders followed regional stocks down on reports European banks may be saddled with more debt than previously estimated.

Benchmark oil for October delivery was down 40 cents at $73.69 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract fell 51 cents to settle at $74.09 on Tuesday.

Most major Asian stock markets fell Wednesday and the Dow Jones industrial average stumbled 1 percent the day before after reports that EU stress tests of 91 banks in July understated some lenders' holdings of potentially risky debt. Germany's top 10 banks will have to raise as much as $135 billion to meet new capital requirements, reports said.

Oil traders often look to stock markets as a barometer of overall investor sentiment.

Some analysts are concerned that slowing U.S. economic growth in the second half could undermine crude demand. Bank of America Merrill Lynch expects crude to average $78 a barrel in the second half and $85 next year.

"Following robust increases in oil demand over the past 12 months on a stimulus-driven rebound, we now see some downside risk as slower growth sets in and developed countries' oil inventories remain high," B of A said in a report.

In other Nymex trading in October contracts, heating oil fell 0.33 cent to $2.071 a gallon and gasoline dropped 0.57 cents to $1.927 a gallon. Natural gas for October delivery gained 2.6 cents to $3.878 per 1,000 cubic feet.

In London, Brent crude was down 46 cents at $77.28 on the ICE Futures exchange.

[Associated Press; By ALEX KENNEDY]

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