By John Biers
U.S. crude-oil futures settled below $80 a barrel Thursday for the
first time since October--and Brent crude futures closed below $90 a
barrel for the first time since December 2010--as the oil markets were
hit by a host of factors, including fresh signs of anemic industrial
activity.
Oil futures for light sweet crude on the New York Mercantile Exchange
settled at $78.20 per barrel, down $3.25 or 4%, piercing the
pschologically important $80-a-barrel level. Brent oil futures, the
European benchmark, also declined sharply, dropping $2.99, or 3.3%, to
$89.56 a barrel.
"The market is under pressure and it's looking for a bottom to slide
to," said Gene McGillian, a broker and analyst with Tradition Energy.
The retreat comes as U.S. and global oil inventories remain
well-supplied with sluggish demand. It also follows policy moves by
the Federal Reserve Wednesday that fell short of the quantitative
easing market participants thought would stimulate the economy--and
boost demand for crude.
Analysts also pointed to a report released Thursday by the Federal
Reserve Bank of Philadelphia that showed a big drop in general
business activitiy within the factory sector, tumbling to -16.6 in
June from -5.8 in May..
Key bearish signs for crude were the building of U.S. oil inventories
to the highest level in decades and weak manufacturing data from
Germany and China, Jim Ritterbusch of Ritterbusch & Associates in
Galena, Ill., said in a note.
Analysts also pointed to greater weakness in the equity market with
the Dow Jones Industrial Average off more than 200 points late in the
New York Stock Exchange's trading day. Disappointing U.S. existing
home sales, which fell a greater-than-expected 1.5%, didn't help
matters.
JBC Energy in Austria did offer a contrarian view, noting that Iranian
oil production remains a question mark in light of sanctions and that
the current stockpiles could "disappear alarmingly quickly" if Saudi
Arabia cuts back output.
Now that oil has fallen through the $80-a-barrel threshold, the talk
turned to how much lower oil could drop.
"Every $10 are big numbers," said Kyle Cooper, an analyst with IAF
Advisors in Houston. "These are psychologically important price
points."
A big question, Cooper said, is if Thursday's trading constitutes a
one-day blip, or of oil closes out the week below $80 on NYMEX. If the
latter, the discussion could shift to $73- or $75-a-barrel oil, he
said.
While oil could still fall further Mr. McGillian said it is unlikely
the price will go below the 2011 nadir of around $75 a barrel. That's
because many economies around the world are still growing.
Oil would slip even further in a global recession. "We don't have
warning signs that that's actually happened yet," he said.
More bearish was United-ICAP senior technical analyst Walter
Zimmermann, who sees oil prices falling to the $71-to-$73-per-barrel
range. He reasons that oil prices would be hurt by a combination of
the strengthening dollar and the weakening stock market. Crude usually
moves inversely to the dollar, and often is directly correlated with
equity markets.
"This is the worst possible double whammy for energy," Zimmerman says.
"We see lots more room on the downside for the stock market and lots
more room on the upside for the dollar."
Write to John Biers at john.biers@dowjones.com
-Kathleen Madigan contributed to this report.
(END) Dow Jones Newswires
June 21, 2012 15:26 ET (19:26 GMT)
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