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Oil tumbled below $80 a barrel for the first time in eight months in New York as U.S. inventories surged amid concern that the European debt crisis will drag down the global economy, reducing fuel demand.
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 a preliminary reading 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 forecast 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 78 cents, or 1 percent, to $80.67 a barrel in electronic trading on the New York Mercantile Exchange as of 12:59 p.m. London time. Prices peaked at a settlement high of $109.77 on Feb. 24.
Brent oil for August settlement decreased 87 cents, or 0.9 percent, to $91.82 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium to West Texas Intermediate of $11.20 after closing at $11.24 yesterday, the lowest level since January.
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 earlier this month, adding pressure to global prices. Saudi Arabia pumped crude at the fastest pace in at least 23 years. The country’s oil minister, Ali al-Naimi, said on June 15, a day after OPEC members met, that Saudi Arabia will continue to prevent any shortages.
“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 consumer, will drop for a second year in 2012, the Energy Department said in its Short-Term Energy Outlook June 12.
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.
Euro-area services and manufacturing output contracted for a fifth month in June, suggesting Europe’s economy may fail to grow in the current quarter, London-based Markit Economics said today, citing an initial estimate of 46 for its composite index. A reading below 50 indicates contraction.
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 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 both this year and next, according to the U.S. Energy Department.
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