(Updates Brent closing price and adds details)
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 psychologically important $80-a-barrel level. Brent oil futures, the European benchmark, also declined sharply, dropping $3.46, or 3.7%, to $89.23 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 activity 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.
The preliminary HSBC China Manufacturing Purchasing index, a widely watched gauge of manufacturing activity, fell to 48.1 in June from a final reading of 48.4 for May. Meanwhile, Germany's PMI fell to 48.5 this month--its lowest level in three years--from May's 49.3. In both cases, any reading below 50 indicates contraction.
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 if 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 because when the dollar falls, crude becomes cheaper for people buying in other currencies. Crude prices are often directly correlated with equity markets because both are linked to economic expansion.
"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 email@example.com
-Kathleen Madigan contributed to this report.