Oil below $86 in Asian trade after S&P downgrades Italy rating

SINGAPORE—Oil prices hovered below $86 a barrel Tuesday in Asia as investors worried about Europe’s worsening debt crisis and looked to this week’s US central bank meeting.

Benchmark oil for October delivery was down 2 cents at $85.68 at midday Singapore time in electronic trading on the New York Mercantile Exchange. Crude dropped $2.26 to settle at $85.70 on Monday.

In London, Brent crude for November delivery was up 10 cents at $109.24 on the ICE Futures exchange.

Italy’s credit rating was downgraded one notch by Standard & Poor’s Ratings Services on Monday because of weak economic growth and high government debt levels. S&P has a negative outlook on Italy’s ratings, citing political and policy differences that will likely limit the country’s ability to respond effectively to its debt crisis.

Analysts are concerned Europe’s debt woes will exacerbate slowing global economic growth. National Australia Bank this week cut its 2011 global growth forecast to 3.8 percent from 4 percent.

“Given this slower growth, and its subsequent impact on demand, there is good reason to be bearish on oil prices through the remainder of 2011,” NAB said in a report.

Investors will also be closely watching the US Federal Reserve’s two-day meeting starting later today. Some investors expect the Fed to announce stimulus measures to help spur economic growth.

Crude has traded between $80 and $90 for more than a month as traders wait for evidence Europe can solve its debt problems and whether the US will slip into recession.

In other Nymex trading for November contracts, heating oil rose 0.5 cent to $2.96 per gallon and gasoline futures gained 0.6 cent to $2.68 per gallon. Natural gas for October delivery added 0.2 cent to $3.83 per 1,000 cubic feet.