Brent fell toward $105 a barrel today as concerns of the debt crisis spreading across Europe dogged investors despite a radical French proposal to rollover Greek debt.
President Nicolas Sarkozy said that French banks had reached a draft agreement with the authorities on a voluntary rollover of maturing bonds, as markets anxiously awaited the outcome of a vote in Greece to approve unpopular fiscal austerity measures.
ICE Brent crude for August was down 49 cents to $105.50 a barrel by 0600 GMT after hitting an intraday high of $106.84. US crude fell 4 cents to $90.57 barrel, but it held above the front-month 250-day moving average of $89.45.
"Crude oil markets are retreating from the early rally in the absence of positive newsflow," ANZ analyst Serene Lim said. "Investors are cautious ahead of the key Greek parliamentary votes tomorrow."
Investors are still watching to see if Greece's parliament will approve austerity steps that are a precondition for international aid that the country needs to avoid a default.
Prices were expected to remain volatile as some investors were still worried about the result of the Greek vote, said Ken Hasegawa, a commodity sales manager at Newedge Japan.
"WTI may be supported around $90, but any upside will be limited because of concerns about the economy in the euro zone," he said. This could keep Brent's premium to WTI in a range between $13 and $15 a barrel, he added.
The euro was steady today and the dollar slightly weaker against major currencies , stalling just below chart resistance, as investors awaited the Greek vote.
Without approval, the European Union and the International Monetary Fund say they will not disburse the fifth trance of Greece's €110 billion bailout programme. Athens needs the aid to pay its bills next month and avert the euro zone's first sovereign default. "If they fail to get an agreement, oil prices will fall," Mr Hasegawa said.
A surprise announcement by the International Energy Agency to release oil from strategic reserves has likely been priced in after Brent fell 7 per cent last week, he added. "Fundamentally, I don't think that will have a big impact on the market ... as the 60 million barrels of oil can be absorbed easily," he said.
South Korea will start to release 3.46 million barrels of oil, including 2 million barrels of crude and 1.46 million barrels of products by "today at the earliest," a source at the economy ministry said.
A drop in prices may lift gasoline consumption in the United States, Mr Hasegawa said, easing concerns of demand destruction at the world's largest oil user.
The market is also gearing up for a fall in crude inventories in the United States in industry data due late today. Analysts are expecting stocks to shrink for the fourth week in a row.
Investors were also watching events in Libya, after the International Criminal Court issued an arrest warrant yesterday for leader Muammar Gadafy, and rebels trying to oust him said their forces had advanced to within 80km of the capital.
