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Crude Off for 4th Day; Below $98/Bbl on Demand Woes

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The bruising sell-off in crude oil futures continued for a fourth day Monday, pushing U.S. crude prices below $98 as election results in France and Greece stoked fears of a widening economic slowdown that will cut oil demand.

New doubts over the future of hard-fought economic austerity measures and fresh worries about European sovereign debt come to the forefront as the U.S. economic recovery is showing signs of sputtering and oil inventories have built to 22-year highs.

Voters in France over the weekend ousted the party of Nicolas Sarkozy, a leading player in the sovereign debt deals, while Greece faces new challenges in patching together a coalition government.

"The bears are in control and I don't think we're done yet," said Tom Bentz, director at BNP Paribas Prime Brokerage in New York.

Light, sweet crude oil for June delivery on the New York Mercantile Exchange settled 55 cents at $97.94 Monday. The contract lost $8.29 a barrel, or 7.8%, in the last four days. Prices hit the lowest intraday levels since Dec. 20 since Friday's settlement, falling to $95.34 a barrel.

ICE June Brent crude settled 2 cents lower, at $113.16 a barrel, the lowest since Feb. 2. Prices have dropped $6.50, or 5.4%, in the past four days.

U.S. benchmark crude would need to settle back above $100 to show strong signs of a rebound, while a test down to the low $90s, last seen on a sustained basis in November 2011, is possible, Bentz said.

Jim Ritterbusch, president of Ritterbusch & Associates, noted that prices went from a four-week high of $106.16 a barrel on May 1 to 12-week lows below $98 a barrel just four days later.

Commitment of traders data for May 1, released Friday, showed money managers boosted their net long position in Nymex crude oil futures and options by 12% in the week, as prices climbed to the highest level since March 27. With speculative money titled to the long side, or expecting still-higher prices, the selloff accelerated rapidly in what Ritterbusch called a "slingshot" affect, with many of those long positions likely unwound in recent days and prices hit 12-week lows.

U.S. data on Friday showed a much smaller-than-expected increase in non-farm payrolls in April, igniting fresh worries about the economic health of the world's biggest oil consumer and the impact on oil demand.

Crude oil prices would need to move below $90 and stay there for an extended period to give a considerable upside jolt to the economy, analysts said.

U.S. crude oil inventories have climbed by nearly 30 million barrels in the past six weeks, to the highest level since September 1990 and the most ever for this time of year since the government began collecting weekly data in 1982.

According to estimates from seven analysts surveyed by Dow Jones Newswires, U.S. crude-oil inventories rose by 2 million barrels in the week ended May 4.

If the forecast is correct, stocks would climb to 377.864 million barrels and the surplus of oil to the five-year average would rise to 6.9%, the largest level since last June.

Gasoline stocks are expected to fall by 300,000 barrels, while distillate stocks, comprising heating oil and diesel fuel, are expected to rise by 400,000 barrels. Refiners are expected to boost operations by 0.3 percentage point to 86.3% of capacity.

Reformulated gasoline blendstock futures for June delivery were off 0.17 cent, at $2.97.41 a gallon, the lowest since Feb. 7, and have lost 5.4% in six days.

June heating oil futures settled down 2.74 cents, at $2.9814 a gallon, the lowest since Dec. 30. The contract lost 6.4% in the previous five days.

Copyright (c) 2012 Dow Jones & Company, Inc.

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