October 15, 2014 / 6:40 AM / 5 years ago

UPDATE 10-Oil resumes slump on economic gloom after brief bounce

* Dollar weakness gives oil brief lift, but rebound fleeting

* Oil whipsawed as U.S. stocks slide 3 pct, Treasuries rally

* U.S. producer prices, retail add to economic gloom

* Coming up: API weekly oil inventories; 2030 GMT (Updates with closing prices, adds gasoline futures, comment)

By Jarrett Renshaw

NEW YORK, Oct 15 (Reuters) - Oil prices slumped on Wednesday after a brief bounce from four-year lows failed to gain traction, as equity markets tumbled and economic gloom spread.

A sharp fall in the U.S. dollar lent modest support to oil prices early in the day, but the mood turned bearish again by mid-afternoon as traders saw little end in sight for oil’s deepest rout in three years. European benchmark Brent has fallen 28 percent since June as OPEC’s most influential members see little need to shore up markets by cutting output.

Brent crude for November delivery, which expires on Thursday, settled $1.26 lower at $83.78 a barrel, after trading earlier as low as $83.37, its weakest since 2010. It fell nearly $4 on Tuesday, the biggest drop in three years.

“When the market comes off a day like yesterday, it’s going to have rallies back up. It’s not a straight line down,” said Joseph Posillico, a senior vice president of energy derivatives with Jefferies Bache. “The trends are still down, and I think it’s possible that we have a new range between $70 and $80.”

U.S. crude ended just 6 cents lower at $81.78 as buyers returned early in the day after the contract hit $80.01, a symbolically important level in a market that has crashed through most lines of major support.

Oil was also whipsawed by gyrations in outside markets, with U.S. stocks falling almost 3 percent and Treasury bills rising 1.5 percent after data showed producer prices fell for the first time in more than a year and retail sales fell.

The dollar index fell almost 1 percent, reversing part of a near 10 percent rally since May that has weighed on commodities.

“The weaker dollar is going to give us a little support on the freefall,” said Phil Flynn at Price Futures Group.

Reformulated gasoline blendstock futures in New York fell 1.5 percent to $2.147 a gallon. The sharp declines in gasoline could reflect concerns that the weakness in the stock market is going to filter down to consumer confidence, said Tariq Zahir at Tyche Capital Advisors.


The accelerating rout has spurred a surge in options buying this week as oil producers seek insurance against a deeper tumble. The CBOE's oil VIX index has spiked to its highest since mid-2012. (link.reuters.com/vuq23w )

Meanwhile some Wall Street banks have been racing to neutralise exposure to big oil option trades, adding pressure to spiralling prices.

Oil prices remained under pressure as core members of the Organization of the Petroleum Exporting Countries appeared to be focused on fighting for market share rather than on cutting production to shore up prices.

U.S. commercial crude oil inventories were forecast to have increased in the week ended Oct. 10, while refined products probably fell, according to a Reuters poll of analysts ahead of data due out later on Wednesday and Thursday. (Additional reporting by Florence Tan and Libby George, and Jonathan Leff; Editing by Christopher Johnson, Jane Baird, Jessica Resnick-Ault, Gunna Dickson and Marguerita Choy)

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