Oil prices fall on Greek rescue deal doubts

Oil prices fell Tuesday as investor skepticism about Greece's third bailout overshadowed encouraging economic data in the United States, the world's biggest consumer of crude.

New York's main contract, West Texas Intermediate (WTI) for January delivery, settled at $87.18 a barrel, down 56 cents from Monday's close.

In London trade, Brent North Sea crude for delivery in January fell $1.05 to $109.87 a barrel.

"We did have some decent US data but the market is very much focused on what is happening in Europe," said Matt Smith at Summit Energy.

Crude oil futures initially had rebounded in relief after the announcement early Tuesday of another hard-fought rescue deal for Greece from the European Union and the International Monetary Fund.

Fitch ratings agency said the deal "eases the immediate threat of a Greek sovereign default or eurozone exit." But it warned key questions remain about how the bailout will work and that implementation risk is high.

"It seems that the bailout play has lost a little magic," said Phil Flynn at Price Futures Group. "Perhaps because the market is not sure that the terms of this Greek bailout are actually going to work."

GFT analyst Fawad Razaqzada noted that crude futures also tracked the euro, which weakened against the dollar after news of the Greek deal. A stronger dollar makes crude more expensive in other currencies, tending to limit demand.

Investors remained cautious ahead of the looming "fiscal cliff" in the United States -- a combination of large tax hikes and spending cuts set to take effect beginning in January if politicians cannot compromise on an alternative deficit-cutting plan.

"The other uncertainty, the US fiscal cliff, is still in front of us," PVM oil brokers analyst Tamas Varga.

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