C rude oil prices took their steepest intraday dive in almost a month on concerns slow economic recovery in the United States and diminished growth in China will hamper demand for the commodity.
Data released Thursday indicating manufacturing output has slowed in both the U.S. and China, raised market jitters global hunger for oil was abating.
Further adding a chill were unexpected increases in jobless claims and gasoline stockpiles south of the border last week.
The rise of gasoline inventories just as the summer driving season kicked off suggested slumping consumer confidence and a weakening economy, sending traders into a selling spree.
In China -- the world's No. 2 economy by purchasing power -- the official Purchasing Managers' Index fell in June from May, knocked down by government measures to cool the property market and restrain bank lending.
The National Bureau of Statistics said the index refl ected a "grim" outlook for exports, given the debt woes in Europe and China's recent abolition of some export tax rebates.
Oil dropped $2.63 US per barrel Thursday to settle at $72.95 US, its lowest settlement since June 8.
August futures traded as low as $72.05 during the day in New York.
Markets in Canada were closed due to the Canada Day holiday.
Despite crude's tumble, analysts expect oil prices will be strong enough to maintain activity in Alberta's oilsands region.
Prices are expected to remain above $70 this summer, rising to the mid-$80-range by early 2011, said Lanny Pendill, with Edward Jones.
The upward trend will help sustain development of Alberta's oilsands but likely only for projects already in the ground, he said.
"The projects that are going forward these days will get good economics at that price," Pendill said from St. Louis. "But I don't think producers are comfortable sanctioning projects that require an oil price of higher than $80."
A year ago several dozen oilsands projects, including 10 upgraders, were put on hold due to lower prices, the recession and tight access to credit. Increased optimism and strong demand from emerging economies in China and India prompted companies such as Canadian Natural Resources and Imperial Oil to reopen the projects this year.
Thursday's numbers could throw a shadow on the outlook.
"We could have a double-dip recession," said James Cordier, portfolio manager at OptionSellers. com in Tampa, Fla., in an interview with Bloomberg. "Until we get some decent economic numbers, oil is going to have a hard time getting its head much above water."
"We're going to get rallies in oil but every dollar up is going to be a battle because of headwinds in the U.S. economy," Cordier said.
At the same time crude dipped to a low of $72.05 US per barrel, natural gas futures advanced to four-week highs after a report U.S. inventories rose less than expected last week.
Natural gas storage rose to 2.684 trillion cubic feet last week, 12 per cent higher than the five-year average, but down 27 billion cubic feet from last year at the same time.
Prices jumped 23.8 cents US to settle Thursday at $4.854 per million British thermal units (mmBTU). Prices were 28 per cent higher than a year ago.
Forecasts for a hotter than average week ahead in the U.S. also lifted demand for natural gas, which powers 22 per cent of electricity generation.
The smaller injection into storage translates into optimism an overhang of supply from the winter will be reduced more quickly, said Pendill.
"The fear was that producers would once again have to shut in gas well before the refill season, and all that was keeping pressure down on prices," Pendill said from Missouri.
An extended stretch of hot weather and related air-conditioning demand could see the market turn bullish as traders scramble to cover their short positions, Pendill said.
Since the end of April, natural gas prices have gained approximately 18 per cent, while oil has slid 12 per cent, he noted.
Edward Jones expects natural gas prices to rise to $6 per mmBTU by 2011, although a long hot summer could boost the commodity.
Edward Jones' long-term outlook range for oil, based on marginal cost of supply, is between $75 and $85 per barrel over the next five years.
Further pulling down market sentiment Thursday was data out of the U.S. showing pending sales of previously owned homes plunged a record 30 per cent in May to the lowest recorded levels since 2001.
