BUSINESS
09/19/2011 07:27 EDT | Updated 11/19/2011 05:12 EST

Oil falls to near US$87 in Europe as US dollar strengthens amid EU debt crisis

Oil prices fell to near US$87 a barrel Monday as investor concerns about Europe's debt crisis fuelled a stronger U.S. dollar.

By early afternoon in Europe, benchmark oil for October delivery was down 81 cents at $87.15 in electronic trading on the New York Mercantile Exchange. Crude dropped $1.44 to settle at $87.96 on Friday.

In London, Brent crude for November delivery was down 36 cents at $111.86 on the ICE Futures exchange.

The euro has weakened this month amid growing fears that a possible debt default in Greece could trigger similar moves in Portugal, Ireland, Italy and Spain as well as a banking crisis. A stronger dollar makes commodities such as oil more expensive for investors with other currencies.

"The political cacophony in Germany about Greece is not slowing down and it is quite clear that we should not write off the risk premium for Greece just because a video conference is organized between Merkel and Sarkozy," said Olivier Jakob of Petromatrix in Switzerland. "Late on Friday, Moody's confirmed that it could still downgrade Italy within the next month."

The euro fell to $1.3662 on Monday from $1.3794 on late Friday.

"We still view eurozone debt issues as challenging to the extent that a long term solution will remain elusive," energy consultant Ritterbusch and Associates said in a report. "The euro will be proceeding through a renewed weakening phase that will be placing additional pressures on the oil market."

Investors this week will also be closely watching the outcome of a U.S. Federal Reserve meeting and corporate quarterly earnings results.

"Sentiment might not pick up until later in the week when the Fed meets on Tuesday and Wednesday," said Edward Meir at MF Global in New York. "However, similar to the EU buildup, we suspect the markets will come away disappointed with the Fed meeting since the central bank has pretty much run out of bullets."

In other Nymex trading for November contracts, heating oil fell 0.45 cent to $3.0044 per gallon and gasoline futures slid 0.86 cent to $2.7755 per gallon. Natural gas for October delivery fell 0.8 cent to $3.801 per 1,000 cubic feet.

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Alex Kennedy in Singapore contributed to this report.