Crude oil futures fell below $88 a barrel on Wednesday as fresh fears about Europe’s debt problems cut expectations for oil demand and as hope for Chinese stimulus fades.

Oil prices settled down $2.94 to $87.82 a barrel on the New York Mercantile Exchange, a seven-month low. Oil prices are now 20% lower than they were at their peak in late February.

On the ICE futures exchange, Brent crude also fell $3.21 to $103.47, nearly 20% lower from highs in March.

Sentiment towards Europe took a turn for the worse on Wednesday as the barrage of negative news flows continued.

The Governor of the Bank of Spain Miguel Angel Fernandez Ordonez resigned following criticism about how he handled the nationalisation of the country’s third largest lender, Bankia. The bank has losses in the property and mortgage sector which are thought to be around EUR140bn.

A failed Italian debt auction also battered market sentiment and soured the demand outlook for oil in Europe.

Meanwhile Asian markets fell and oil prices came under further pressure after Chinese state media said the country would not roll out government stimulus as was seen in 2008.

Gold investors put their buying hats back on mid session following the previous session’s sharp decline, despite the strengthening dollar.

Gold for August delivery, the most-active contract, climbed $14.70 to settle at $1,565.70 an ounce on the Comex division of the New York Mercantile Exchange.

Buyers dipped back in around the $1,530 mark as safe haven flows picked up on the back of more bleak headlines on Europe’s debt crisis.

July silver gained 19 cents to $27.98 an ounce while July cooper fell 7 cents to $3.39 a pound.

CJ