Oil down in Asia on eurozone bank bailout concerns

In this file photo taken with a long exposure, a pumping unit sucks oil from the ground near Greensburg, Kan. AP FLE PHOTO

SINGAPORE – Oil prices fell in Asian trade on Tuesday after comments from a top eurozone official sparked fears that a bailout deal for Cyprus will set a precedent for other bank rescues in the troubled region.

New York’s main contract, light sweet crude for delivery in May dropped nine cents to $94.72 a barrel and Brent North Sea crude for May delivery shed 13 cents to $108.04 in mid-morning trade.

Jeroen Dijsselbloem, who heads the Eurogroup of finance ministers, said in an interview published on Monday that the cost of bank recapitalisation should not fall on the public sector but on bondholders, shareholders and, if necessary, uninsured deposit holders.

The comment to the Financial Times, widely interpreted as a signal that the bailout for Cyprus would become a template for handling fragile banks in the ongoing eurozone crisis, sent global markets falling sharply.

Dijsselbloem later released a statement via Twitter saying Cyprus was a “specific” case.

“Depositors are wondering if the Cyprus bailout sets an example for other European countries to follow. This market panic resulted in oil prices turning lower,” Ker Chung Yang, senior investment analyst at Phillip Futures in Singapore, told AFP.

The European Union and International Monetary Fund on Monday struck a last-minute deal with Cyprus that will qualify the island for a much-needed rescue package to help it service its debt.

The agreement involves breaking up the island’s second largest lender Laiki (Popular Bank), while deposits above 100,000 euros ($130,000) in Bank of Cyprus, the island’s main lender, will take a major “haircut”.

“Cyprus has touched the nerves of a lot of people. I guess the question is who will be next, and what pressure such a deal will have on the ability of Cyprus to trade out of their issues,” said Jonathan Barratt, chief executive officer at Barratt’s Bulletin in Sydney.

“It raises a lot of questions about what is next for them, and what other nations within the EU will be subject to if they have a debt crisis,” he told AFP.