Oil prices fell Monday to add to the sharp decline in the previous session as French and Greek election results raised doubts about those countries' commitment to the austerity measures to sort out Eurozone debt crisis.
Light sweet crude futures for delivery in June traded down $1.24 at $97.25 a barrel during Asian hours in the New York Mercantile Exchange. Brent crude futures for delivery in June lost $0.81 to touch $112.37 in ICE Futures Exchange.
The losses followed heightened concern in the market caused by the election results from Greece and France. The Greek election results suggest that a change in government is highly likely with the two main parties that supported the austerity measures and bailout package doing badly.
In France, Socialist Francois Hollande defeated Nicolas Sarkozy, signalling that Paris will not approve of the austerity measures Eurozone needs to implement to emerge from the debt crisis.
The defeat of Sarkozy, who is one of the main supporters of the austerity measures and the bailout plans, has ticked off market concern about a possible resumption of the Eurozone debt crisis.
Meanwhile, member nations of the Organization of the Petroleum Exporting Countries (OPEC) increased the oil supply by 2.3 million barrels per day, which helped push oil price down further. Saudi Arabia, the world's largest oil exporter, increased its production to a record high of 10 million barrels a day.
Last week, the weaker-than-expected US job data resulted in raising doubts about the strength of the country's economy and also the oil demand which subsequently weighed down the price.
Meanwhile, the US and its European allies are imposing tighter sanctions on Iran, the second-biggest producer in the OPEC. In total, Iran exports around 2-2.5 million barrels of oil per day. The loss of this supply might add as much as $15 to oil prices, but as yet there has been little actual disruption.
Last month, the major world powers (the five permanent members of the UN Security Council, plus Germany) held talks with Iran which were reported to be constructive. This slightly reduced tensions between them.
The two sides will hold another meeting May 23 which would focus on agreeing upon confidence-building measures.
It is still unlikely that Iran will give as much ground as many in the West (and especially in Israel) would want. In particular, Iran is reportedly only willing to scale back its uranium enrichment to a purity of 20%, still well above the 5% considered necessary for civil nuclear purposes. But this is probably enough for the major powers, who are well aware of the risk that a sustained period of high oil prices would pose to the fragile global economy, Julian Jessop of Capital Economics said about the May meeting.
It looks increasingly likely that the May meeting will allow the EU sanctions, due to come into force on July 1, to be put on hold and that the US will ease pressure on other countries to boycott Iranian oil, which could in turn add to the downward pressure on oil prices.