Oil fell to the lowest price in more than four weeks in New York after the U.S. Federal Reserve cited “significant downside risks” to the economic outlook in the world’s biggest crude-consuming nation.
Futures slipped as much as 5.5 percent, declining with other commodities and European equities markets. The Fed said it will buy $400 billion of long-term debt in an attempt to keep the economy from relapsing into a recession. U.S. gasoline stockpiles climbed more than forecast last week and the nation’s oil production rose to the highest in eight years, Energy Department reports showed.
“We’ve seen equities come down, we’ve seen the euro-dollar being hit, and that’s feeding through to commodities,” said Christin Tuxen, a senior analyst at Danske Bank A/S in Copenhagen, who expects North Sea Brent crude to drop to near $100 a barrel in the next month. The Fed’s decision not to implement an outright third round of so-called quantitative easing “leads investors to take their money out of the risky assets like oil,” she said.
Crude for November delivery on the New York Mercantile Exchange dropped as much as $4.72 to $81.20 a barrel, the lowest intraday price since Aug. 22. It was at $81.58 at 1:27 p.m. London time, up 9.2 percent from a year ago.
Brent oil for November settlement fell $3.92, or 3.6 percent, to $106.44 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $24.86 to U.S. futures, compared with a record $26.87 on Sept. 6, based on front-month settlement prices.
Global Weakness
“The oil market is on downside momentum with serious lack of risk appetite,” Myrto Sokou, an analyst at Sucden Financial Ltd. in London, said. “In addition to the weak macroeconomic data, we have to acknowledge the lack of oil demand from the U.S. and emerging markets, amid ongoing concerns about growth.” Sucden expects WTI crude to test $80 a barrel, while Brent’s drop will be limited to $105 a barrel.
The Stoxx Europe 600 index was down 4.1 percent at 1:15 p.m. London time and the MSCI Asia Pacific Index fell 4.1 percent, while the dollar gained 1 percent to trade at $1.3438 against the euro. The Standard & Poor’s 500 Index dropped 2.9 percent in New York yesterday after the Fed said it would replace short-term debt it holds with longer-term Treasuries to further reduce borrowing costs.
“Commodity prices are very weak as the markets become more and more concerned about the prospects for global weakness rather than even modest global growth,” Dennis Gartman, the economist and editor of the Gartman Letter, said in his daily report. “Weak equity markets along with a strong U.S. dollar are, and shall be, weighing upon prices.”
Gasoline Supplies Surge
U.S. gasoline inventories surged 3.3 million barrels to 214.1 million barrels, the biggest one-week gain since May and the highest level since July, a report from the Energy Department shows. They were forecast to increase 1.35 million barrels, according to a Bloomberg News survey of analysts.
Crude-oil stockpiles decreased 7.34 million barrels to 339 million in the week ended Sept. 16, the lowest level since January, the report showed. They were forecast to decline 1.3 million barrels, according to the Bloomberg News survey. Supplies are 3.4 percent higher than the five-year average.
U.S. oil output rose 13 percent to 5.75 million barrels a day last week, the highest since August 2003, the Energy Department said. Supply has climbed as drillers take advantage of technology developed for gas production, particularly from shale-rock formations, to pump crude and liquids from previously impenetrable sites.
World oil output averaged 89.8 million barrels a day in August, according to Energy Intelligence Group.
To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net
To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net
