Crude oil prices set to remain volatile as European deal falls apart

Crude oil prices are set to end the year volatile and with no clear direction as markets erode confidence in the latest European bailout deal which is now clearly falling apart after Hungary and the Czech Republic refused to give up control of tax policies to EU powers.

Latest Crude Oil Prices

In London, Brent crude oil futures for February 2012 delivery was trading at $103.85 a barrel, 08.20 GMT this morning on the ICE Futures Exchange. The January Brent contract expired yesterday.

Meanwhile, US WTI Light crude oil was at $93.74 a barrel.

European Deal Falls Apart

Hungary and the Czech Republic, who are also outside the eurozone, are refusing to join the new agreement if it means giving up control of tax policies.

The two EU countries had initially agreed to be part of a deal proposed at the Brussels summit last week that would mean closer fiscal union between member states and tighter budget rules.

But now Hungarian Prime Minister Viktor Orban says there’ll have to be concessions, which oddly enough is exactly what the UK’s David Cameron had asked for a week earlier.

After Britain used its veto to prevent changes to the EU treaty itself, the other 26 members agreed to move forward on drafting a new agreement meaning individual countries would have their tax and budget policies approved by the EU.

The nine countries who don’t use the euro have said the agreement will have to go before their respective parliaments, so there is a chance that others may drop out.

Falling Oil Prices

The US WTI oil futures contract had shed more than 5 percent in New York on Wednesday amid fading hopes that the crisis plan unveiled at last week’s European Union summit was enough to resolve the eurozone debt crisis.

“Nothing has changed. The market is still very much concerned about the EU problem.” said Tom Bentz at BP Paribas.

To add to Europe’s problems, investors had hoped that the European Central Bank would take a bigger role in aiding heavily indebted countries like Greece, Italy and Spain, but the ECB has given no indication that it will do so.

Without more support those countries won’t be able to pay their bills without even greater spending cuts, analysts said. That will further reduce oil demand and slow imports of manufactured goods from the US, China and elsewhere.

Many traders thought the European financial crisis would be resolved by now. With the situation still in flux, they have decided to close out their positions and lock in whatever profits they’ve made before the end of the fiscal year.

“The market has come to the reality that the European situation won’t be tidied up before the end of the year.” said PFGBest analyst Phil Flynn.

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Crude oil prices set to remain volatile as European deal falls apart