Oil Drops Below $80 to 8-Month Low on U.S. Supply, Europe Crisis
By Grant Smith and Moming Zhou on June 21, 2012Bloomberg News
Futures dropped as much as 1.9 percent in New York to $79.92 a barrel, the lowest intraday level since Oct. 6. Prices have slumped 27 percent from this year’s settlement high as U.S. stockpiles rose to the most in almost 22 years and growth slowed in the U.S., Europe and China. Federal Reserve policy makers lowered the outlook for U.S. economic growth and employment, while an index of Chinese manufacturing by HSBC Holdings Plc and Markit Economics pointed to a contraction for an eighth month.
“There’s negative momentum in the market, which is being accelerated by the inventory data, bad economic sentiment and a stronger dollar,” said Eugen Weinberg, head of commodities research at Commerzbank AG, who correctly predicted prices would fall after this week’s Fed meeting. “I see markets bottoming in late summer, until then further slippage is likely.”
Crude futures for August delivery fell 93 cents, or 1.1 percent, to $80.55 a barrel in electronic trading on the New York Mercantile Exchange as of 9:27 a.m. London time. Prices peaked at a settlement high of $109.77 on Feb. 24.
Brent oil for August settlement decreased $1.09, or 1.2 percent, to $91.60 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium to West Texas Intermediate of $11.09 after closing at $11.24 yesterday, the lowest level since January.
Rising Supply
Inventories increased 2.9 million barrels to 387.3 million barrels in the week ended June 15, the highest level since July 1990, as crude production climbed to 6.35 million barrels a day, the most since February 1999, the Energy Department reported yesterday. Inventories of distillate fuel and gasoline also increased.
Crude supplies from the Organization of Petroleum Exporting Countries rose in May to the highest level since October 2008, a Bloomberg survey showed, adding pressure to global prices. Saudi Arabia pumped crude at the fastest pace in at least 23 years.
“There is no catalyst here to spike the price,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “We know that demand is still going to be relatively weak and we know that we have plenty of supply.”
Oil demand in the U.S., the world’s largest crude-consuming country, will drop for a second year in 2012, the Energy Department said in its Short-Term Energy Outlook June 12.
Growth Slows
Federal Reserve officials yesterday cut their estimates for 2012 growth after last month’s slowdown in hiring and see little progress on unemployment during the rest of the year. The central bank lowered its central tendency estimate for U.S. 2012 gross domestic product growth to 1.9 percent to 2.4 percent from 2.4 percent to 2.9 percent in April.
China, the second-biggest user of oil after the U.S., cut borrowing costs this month for the first time since 2008 to combat a deepening slowdown.
The euro-region’s economy will probably shrink 0.1 percent this year, the European Central Bank projected June 6.
The European sovereign debt crisis that began in Greece and then moved to Ireland, Portugal, Italy and Spain has reduced economic growth and fuel consumption.
Antonis Samaras, head of Greece’s New Democracy party, was sworn in as prime minister yesterday after Greek political leaders agreed on a coalition that will seek relief from austerity measures tied to international loans.
European Crisis
European officials have held out the prospect of flexibility over fiscal austerity for Greece after the country’s election amounted to a referendum on remaining in the 17-nation euro currency union.
“The European debt crisis is still not over and any kind of strength you get could prove transitory if they can’t successfully implement what they said they are going to do,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant.
Oil consumption in Europe will fall by 340,000 barrels a day this year and a further 230,000 in 2013, the Energy Department said in the monthly report, adding that “slower growth in China could also curb demand.”
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