Oil stocks down, but oil prices plunge anyway

Oil stocks in the US saw a big drop. But traders, focused on the stalling economy and rising dollar, ignored the oil stocks report and sent oil prices to their lowest level since February.

Shannon Stapleton/Reuters/File
Traders work in the crude oil and natural gas options pit on the floor of the New York Mercantile Exchange in New York in this April 25, 2011 file photo. Although oil stocks fell sharply, oil prices plunged June 15, 2011, because of concerns about ongoing economic weakness and a rising dollar.

NEW YORK – Oil slid more than 5 percent Wednesday, as signs of further economic weakness fed demand worries and a rising dollar also weighed, triggering technical sell-stops and sending U.S. crude to its lowest level since February.

U.S. crude weakened early on data showing a rise in core inflation and shrinking New York manufacturing. It succumbed to intensifying selling pressure as it broke below the 150-day moving average and $95 key support. That eradicated brief gains after a big drop in weekly U.S. crude stocks, reported mid-morning.

``It's a rush for the exits. The market has been overvalued for some time now...the Brent market has been a bubble and the bubble is bursting today,'' said Tim Evans, energy analyst at Citi Futures Perspective.

``In my opinion, WTI would be fairly valued at $85 a barrel and Brent at $90 a barrel,'' Evans added.

The slump came as the U.S. dollar extended gains for its biggest daily rise since September, with the dollar index up 1.8 percent, while the S&P 500 stock index tumbled by more than 1.6 percent to its lowest level since March.

The euro slid against the dollar and was on track for its biggest daily percentage drop in 10 months, as investors fretted about the Greek debt crisis.\

European ministers failed on Tuesday to reach agreement on how private holders of Greek debt should share the costs of a new bailout, putting the onus on leaders of Germany and France to forge a deal later this week.

Brent crude for July delivery, which expires on Wednesday, fell $3.14 to $117.02 a barrel by 2;05 p.m. EDT. Brent hit a session low of $117.

U.S. July crude was down $4.05 at $95.32 a barrel, after sliding to a session low of $94.01. Brent's premium against U.S. benchmark West Texas Intermediate for the second-month August contract narrowed by $1 to around $18 a barrel after the July spread had blown out to a record $22.80 hit on Tuesday.

For oil traders it felt much like a repeat of early May, when prices twice swooned from recent post-2008 highs. Other commodities also suffered, with corn slumping toward its biggest three-day loss in a year and a half. The Reuters-Jefferies CRB index fell 2.5 percent.

U.S. core consumer inflation rose more than expected in May to post its largest increase in nearly three years, which could prompt the Federal Reserve to increase interest rates sooner rather than later.

A separate report showed manufacturing in New York State unexpectedly shrank for the first time since November, surprising economists who had expected a rise.

Macroeconomic conditions and debt fears overshadowed weekly oil inventory data, which confirmed a much larger than expected decline in stocks due in large part to a reduction in Midwest supplies as a key Canadian pipeline shut down.

of 5 stories this month > Get unlimited stories
You've read 5 of 5 free stories

Only $1 for your first month.

Get unlimited Monitor journalism.