Oil prices slump on Italy deadlock, US demand worries

Global oil prices fell Tuesday amid uncertainty stemming from Italy's inconclusive elections and expectations of fresh increases in bulging US crude inventories.

New York's main contract, West Texas Intermediate for April, shed 48 cents from Monday, closing at $92.63 a barrel, its lowest level since December 31.

Brent North Sea crude for delivery in April sank $1.73 to settle at $112.71 a barrel.

"The primary thing behind the downward movement in both markets, Brent and WTI, was clearly concerns about Italy and what it implies for the rest of Europe which is already in recession," said James Williams of WTRG Economics.

Italy's national elections Sunday left parliament deadlocked in Europe's third-largest economy and stoked fears of a return to political instability that could undermine efforts to restore growth to the eurozone economy.

European stock markets dived and the euro fell against the dollar, pressuring demand for dollar-priced crude oil.

"The election is a worst-case scenario for Italy (and the parliamentary system), and guarantees an unstable government for a considerable amount of time," Robert Yawger, an analyst at Mizuho Securities USA, said in a client note.

The market appeared to brush off US Federal Reserve Chairman Ben Bernanke's semi-annual testimony to Congress on monetary policy and the economy, with the Fed chief's remarks "pretty much expected," said Williams, the WTRG Economics analyst.

Traders also braced for Wednesday's weekly report on US petroleum inventories.

The Department of Energy was expected to report crude oil supplies increased by 2.3 million barrels in the week ending February 22, according to analysts polled by Dow Jones Newswires.

US crude oil inventories have ballooned by more than 16 million barrels over the prior five weeks, raising concerns about the growing glut in the United States, the world's largest oil consumer.

Williams warned that the market was approaching the typically low demand season of March and April.