LONDON: Oil fell towards $79 a barrel on Thursday, after earlier hitting a nine-week low as fears a Greek-style debt crisis may spread to other European nations raised uncertainty over future global energy demand.
The euro fell to a 14-month low as the US dollar strengthened on skepticism that Greece could deliver on its promises of strict austerity measures dominated financial markets.
A stronger US dollar makes oil more expensive for investors holding other currencies.
US crude for June delivery fell 63 cents to $79.34 by 1350 GMT, having earlier slumped to $78.24 a barrel, the lowest intraday price since March 1.
The contract dived more than 3 percent on Wednesday to below $80 a barrel for the first time in six weeks after US government data showed builds in crude stocks.
London Brent crude fell 42 cents to $82.19 a barrel.
"The dollar is up as risk appetite has been dampened and prices are adjusting to more realistic levels as earlier this week prices were not backed up by fundamentals," said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt.
"More proof of weak demand came yesterday with US data showing crude and products stocks rose."
Doubts over Greece’s ability to carry out tough spending cuts in return for a €110 billion euro aid package from the European Union and the International Monetary Fund continued to dampen risk appetite.
The European Central Bank left monetary policy unchanged on Thursday, failing to convince investors that it will be able to prevent a debt crisis in the euro zone.
In Nigeria, Africa’s largest oil exporter, Acting President Goodluck Jonathan was sworn in as head of state on Thursday following the death of President Umaru Yar’Adua.
Analysts said his death on Wednesday was unlikely to have an impact on oil production in Nigeria, which has suffered major outages due to attacks on oil facilities in the last five years.
"I think with Yar’Adua’s death at least the situation is clear now," said Holly Pattenden, head of oil and gas at Business Monitor International.
"I don’t think it is in militants’ interest to cause trouble at this stage and they may well want to give the new administration a chance," Pattenden added. –Additional reporting by Florence Tan in Singapore