Oil falls below $90 for first time since Dec 2010

NEW YORK Thu Jun 21, 2012 4:04pm EDT

The word oil is pictured on an oil bank at a recycling yard in London March 2, 2011. REUTERS/Stefan Wermuth

The word oil is pictured on an oil bank at a recycling yard in London March 2, 2011.

Credit: Reuters/Stefan Wermuth

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NEW YORK (Reuters) - Brent crude oil slid nearly 4 percent in heavy trading on Thursday, dropping below $90 a barrel for the first time in 18 months as weak economic data from China, the United States and Europe pointed to prospects for slower oil demand.

A technical breakdown in crude futures on both sides of the Atlantic spurred further selling, with no bottom in sight, analysts said. Brent has fallen by nearly $40 a barrel since hitting $128.40 in early March, as increased production from Saudi Arabia has led to a rise in stockpiles.

Other major commodities also tumbled as gloomy global data darkened the demand outlook for raw materials.

In London, Brent futures for August delivery ended down $3.46 at $89.23 a barrel, the lowest settlement for front-month Brent since December 2010. It had dropped to a session low of $88.90, also the lowest intraday price since December 2010.

U.S. August crude fell $3.25 to settle at $78.20 a barrel, the lowest front-month settlement for U.S. crude since October 4, 2011.

"Supply is outstripping demand and whatever other data you see out there won't change that," said Dominick Chrichella, senior partner at the Energy Management Institute in New York.

"People who are long on oil are just biting the bullet and heading home."

China's factory sector shrank for an eighth straight month in June as export order sentiment hit its weakest since early 2009, according to a survey indicating the country's economic trough may extend well into the third quarter.

U.S. jobs data added to the gloom with little change last week in the number of Americans filing new unemployment claims.

Data also showed U.S. manufacturing grew in June at its slowest pace in 11 months, with hiring in the sector hobbled as overseas demand for U.S. products weakened, compounding the dreary economic outlook in the world's largest oil consumer.

Business activity across the euro zone shrank for a fifth straight month in June, according to the closely watched Markit Flash Composite Purchasing Managers Index for June. <EUR/PMIS>

The PMI report added to economic worries in the region, already beset by a sovereign debt crisis.

FURTHER TO FALL?

Traders and technicals analysts said a move below $90 a barrel in Brent could trigger more selling. U.S. crude is also close to last year's low of $74.95 a barrel, a key support level.

"Really, what we've been calling ‘downward momentum' would now be better described as ‘panic selling,'" said Tom Mooney at Southeast Energy in Houston, Texas.

"Even the most convinced bulls have had to face the reality that, at least for now, their portfolio has been getting ripped up, no doubt with margin calls forcing some to get out."

On Wednesday, oil tumbled more than 3 percent after a surprise weekly increase in U.S. crude inventories, and after the U.S. Federal Reserve opted for another round of monetary stimulus that was more modest than the steps some investors had been hoping for.

"We had follow-through selling early (on Thursday) and that clearly was due to the disappointment over the Fed's action yesterday that investors felt was not enough to help boost the economy," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

"This market is still looking for a bottom," he added.

The selling frenzy lifted the volume of Brent crude oil futures about 85 percent above its 30-day average, according to Reuters data. Trading volume in U.S. crude was almost 9 percent above its 30-day average.

(Additional reporting by Christopher Johnson in London, Luke Pachymuthu in Singapore; Editing by Marguerita Choy, Dale Hudson, Phil Berlowitz and David Gregorio)

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Comments (5)
neillevine3 wrote:
Where is Obama?

Jun 21, 2012 9:46am EDT  --  Report as abuse
neillevine3 wrote:
Where is Obama?

Jun 21, 2012 9:46am EDT  --  Report as abuse
brotherkenny4 wrote:
@neillevine3

Your comment is incoherant.

Low oil prices are good. Likely a response by the industry to the new cafe standard and efforts to improve efficiency and to develop alternative vehicles such as LNG and EVs. Prices if sustained above $100 per barrel for long will only encourage the alternatives. Even the crazy Ayatollahs of Iran don’t want to stir things up so much that they incentivise alternatives.

Well, likey too, some of the alternative oil production technics help too. But, that only occurred because price was high. The cost of production from the non-traditional methods is higher and was only economically viable because of the higher sustained price for oil. Indeed, if your willing to pay $6/gal for gas, we can find more oil. Will being able to access that expensive oil make gas prices go down? Probably not. But, okay, “drill baby drill” the price doesn’t matter to you. It doesn’t have to make sense, it’s only important that your master has called for it.

Jun 21, 2012 1:08pm EDT  --  Report as abuse
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