U.S. oil futures slid back below $100 a barrel Thursday, reversing the previous day's gains, as doubts surfaced about the economy's ability to stomach high oil prices.
Light, sweet crude for December delivery settled down $3.77, or 3.7%, to $98.82 a barrel on the New York Mercantile Exchange. The December contract is set to expire at the end of trading Friday. The more heavily traded January contract settled down $3.67, or 3.6%, to $98.93 a barrel.
Brent crude on the ICE Futures Europe exchange recently traded down $2.89, or 2.6%, to $108 a barrel.
Nymex futures pushed lower on a wave of selling, as traders thought twice about whether $100 crude was sustainable given the cracks in the global economy. A sinking stock market in the U.S., combined with intensifying worries about Europe's sovereign debt crisis, took the wind out of a price rally that had dominated the oil market for the last several weeks.
"Crude oil prices above $100 a barrel are difficult to sustain in an era of weak demand and rising production," said Tim Evans, energy analyst at Citi Futures Perspective in New York.
Prior to Thursday's sell-off, Nymex crude prices had gained 32% since the start of October, helped along by signs of improvement in the U.S. economy and steps in Europe toward containing the continent's sovereign debt crisis.
On Wednesday, news that Enbridge and Enterprise Product Partners planned to reverse the Seaway pipeline catapulted Nymex crude prices above $100 a barrel for the first time in four months. The 500-mile line currently ships oil from the Gulf Coast to Cushing, Okla., the Nymex delivery point. Traders expect the reversal will reduce the high inventory levels in the key oil hub and provide an outlet for inexpensive Midwestern crude to Gulf Coast refiners.
But many traders Thursday viewed the rally as too-much-too-soon. Not until the second quarter of next year will the pipeline begin shipping oil out of Cushing, the companies said. In the meantime, oil production in the Midwest is expected to keep growing and demand is unlikely to climb quickly anytime soon.
"We didn't have a real good reason to continue moving higher," said Tony Rosado, broker at GA Global Markets, an oil options brokerage, in New York.
Downbeat financial headlines also weighed on futures. The Standard & Poor's 500 Index--a widely followed barometer for crude in recent months--recently declined 1.9% to 1214.
Meanwhile, news that Spain was forced to offer record euro-era yields at a government bond auction Thursday spurred concerns that the euro-zone is having difficulty containing its sovereign debt crisis. The development helped feed fears in the oil market about a broader economic slowdown and weaker crude demand.
"I've got Spanish bonds up on my screens," said Stephen Schork, editor of the energy newsletter the Schork Report. "This is the market we have now."
Front-month December reformulated gasoline blendstock, or RBOB, settled down 12.02 cents, or 4.6%, to $2.5071 a gallon. December heating oil settled down 5.14 cents, or 1.6%, to $3.0832 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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