Oil Prices Fall on Portugal Downgrade

World oil prices fell on Wednesday when markets were spooked by a ratings downgrade to Portugal which suggested that the Eurozone debt crisis was worsening.

New York's main contract, West Texas Intermediate for delivery in August, dipped four cents to $96.85 a barrel.

Brent North Sea crude for August shed 65 cents to $112.96 in early London deals.

Oil prices had made solid gains on Tuesday, helped by a tentative surge in optimism on the US economy.

"The rally came to an end first after Moody's lowered the Portuguese credit rating to junk with a negative outlook," said SEB Commodity Research analyst Filip Petersson.

Moody's Investors Service late on Tuesday slashed its credit rating on indebted Eurozone struggler Portugal, bailed out earlier this year, by four notches to Ba2 from Baa1, warning it could be lowered further.

Moody's said the downgrade reflects "the growing risk that Portugal will require a second round of official financing before it can return to the private market (to raise financing)."

The bad news out of the Eurozone contrasted with the United States, which on Tuesday said new orders for US manufactured goods rose 0.8 percent month-on-month in May, after a 0.9-percent drop in April.

"The economic news coming out of the U.S. has been good. Factory orders were up in May, and crude markets have reacted to this," said John Vautrain, an analyst for Purvin and Gertz international energy consultancy in Singapore.

However, worries over the impact of the Eurozone debt crisis are expected to prevent crude prices from rising sharply.

"The European debt problem in Greece and now Portugal is a preoccupation of the market," Jason Feer, analyst with Argus Media, told Agence France Presse.