Oil futures settled lower Wednesday for the first time in six sessions, after hitting their highest point in three months earlier in the day as a wave of both bullish and bearish news buffeted the market.
Prices were down early in the day on concerns about euro-zone financial stability, before rising strongly on the back of a bullish U.S. government report on oil inventories. The market was then pulled lower again throughout the afternoon, in tandem with falling equity markets and a rising dollar as macro concerns about Europe's listing finances re-asserted themselves.
For at least a day, the drop brought a pause to a month-long, 28% rally that added nearly $21 to the price of a barrel of oil, as anticipation of a tightening domestic supply picture has outstripped concerns over Europe's sovereign debt crisis.
Light, sweet crude for December delivery ended the day down $1.06, or 1.1%, at $95.74 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures Europe exchange settled down $2.69, or 2.3%, at $112.31 a barrel.
Crude was bolstered throughout the day by news that would ordinarily send bullish signals to the market, including the possibility of tightened supplies and higher prices in the event of Iran sanctions over its nuclear ambitions, the brief shutdown of the Keystone pipeline, one of the biggest oil suppliers to the U.S., and a key metric in the U.S. Energy Information Report showing inventories for the main U.S. petroleum products were at a 4-year low.
But all of that was overshadowed by the disintegrating picture in Europe, where Italian Prime Minister Silvio Berlusconi pledged to resign as yields on the country's 10-year bond topped out at 7.4%, well above the psychologically important 7% level where Greece, Ireland and Portugal have been forced to seek outside help in the past. Meanwhile, Greek leaders also disagreed over who would lead the country's interim government.
As a result, U.S. equity markets slid, with the Dow Jones Industrial Average off 434 points during the session low, and the dollar rose 1.7% against a basket of other currencies on the ICE Dollar Index. Oil usually trades in tandem with stocks and conversely to the dollar, as a rising greenback makes crude more expensive for traders using other currencies.
"Really what it boils down to is, if the economy in Europe collapses, demand will go down and the price of crude oil will go lower," said Mark Waggoner, president of brokerage Excel Futures. "These markets are all sort-of working together."
The U.S. government's weekly oil inventory report found that crude stocks dropped by 1.4 million barrels, while the consensus estimate of analysts surveyed by Dow Jones Newswires was inventory growth of 700,000 barrels. Motor gasoline stocks dropped 2.1 million barrels compared with an expected gain of 200,000 barrels, distillates dropped 6 million barrels compared with an expected drop of 2.1 million barrels, and refinery run rates dropped 2.7 percentage points, to 82.6%.
Front-month December reformulated gasoline blendstock, or RBOB, finished down 6.22 cents, or 2.3%, at $2.6442 a gallon. December heating oil settled down 1.75 cents, or 0.6%, at $3.0986 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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