OIL FUTURES: US Crude Plunges 3.8% To Eight-Month Low
June 01 2012 - 5:20PM
Dow Jones News
Crude oil futures tumbled Friday on increasing signs of a global
economic slowdown.
U.S. futures fell to their lowest close in eight months, while
the European benchmark, Brent futures plunged below the
psychologically significant $100 level for the first time since
October--and suffered its lowest close in 17 months.
Bleak numbers on U.S. employment coupled with dismal
manufacturing numbers from China to Europe eroded hopes for
economic expansion around the world, which would stifle demand for
crude, traders and analysts said.
The grim growth outlook comes as inventories are soaring and
U.S. production of crude is on the rise, said Tim Evans, an analyst
with Citi Futures Perspective.
"There's too much supply, not enough demand, and doubts about
where demand is headed," he added.
Light, sweet crude futures for July delivery settled at $83.23 a
barrel, down $3.30, or 3.8%, on the New York Mercantile Exchange.
That's the lowest settlement since last Oct. 7. July Brent futures
lost $3.44, or 3.4%, to $98.43--the largest one-day price and
percentage loss of the year and the lowest settlement since Jan.
27, 2011.
Weak manufacturing data from Asia to Europe initially sent crude
prices lower. Disappointing numbers from China, the world's second
largest oil consumer, were particularly damaging. China's
purchasing managers' index, an indication of industrial activity,
fell sharply to 50.4 in May from April's 53.3. The widely watched
HSBC version of China's PMI fell to 48.4 last month from the
previous month's 49.3. As with all PMI numbers, any reading below
50 indicates contraction.
However, U.S. employment numbers well below expectations
accelerated oil's slide.
May nonfarm payrolls indicated that a lackluster 69,000 jobs
were created, well below the 155,000 predicted in a survey by Dow
Jones Newswires. The nation's unemployment rate also rose to 8.2%
from 8.1%.
Even in the price free-fall, U.S. crude rose from its intraday
low of $82.29, in part due some traders' belief that the economic
situation will prompt the U.S. Federal Reserve to provide stimulus
to prevent further deterioration.
"The odds of stimulus are going up pretty dramatically," said
Phil Flynn, an analyst with the Price Futures Group. In the past,
government-backed stimulus has weakened the U.S. currency--and
pushed up dollar-denominated assets like crude.
A report on U.S. manufacturing added to the disappointing
outlook. The purchasing managers' index from the Institute of
Supply Management indicated manufacturing slowed a bit last month,
with the index falling to 53.5, further than the forecasted 53.9,
from April's 54.8. However, any reading above 50 indicates
expansion.
While markets across asset classes slumped broadly after the
weak jobs report, oil futures saw some of the steepest declines.
Oil and gasoline demand in the U.S. is closely linked with
transportation demand. Any indications fewer commuters will be on
the roads--either due to unemployment or curtailing discretionary
trips--can weigh heavily on fuel prices.
Evans said that oil traders are likely to remain cautious in the
foreseeable future, as the month of June is packed with events that
could trigger strong market reactions--from Greek elections and
Iranian nuclear talks to an OPEC meeting in mid-June.
Those who have liquidated their long positions en masse are
unlikely to boldily jump back in while the uncertainty lingers, he
said.
"That wave of liquidation may be coming to a climax here, but I
don't see them flipping around and building positions again given
the uncertainty we know is right in front of us," Evans added.
-By Angel Gonzalez, Dow Jones Newswires; 713-547-9214;
angel.gonzalez@dowjones.com
--Jerry DiColo contributed to this article.