Crude oil futures fell 2.1% to near $98 a barrel Thursday, posting the biggest decline in three weeks on continued worries about Europe's sovereign debt.
Prices had posted early gains, approaching $102 a barrel, after a larger-than-expected drop in new claims for U.S. jobless benefits. The Labor Department said benefits filings in the week ended Dec. 3 fell by 23,000 and were at the lowest level in nine months. Economists had expected a 7,000 decline in the week.
But the weight of concerns, as European leaders begin a two-day summit meeting, hit equities price and crude tumbled. Oil, like all global markets, has been gripped by concerns in recent months that the crisis in European could trigger a global economic slowdown.
Those concerns were especially evident in the heating oil futures market Thursday, traders said, as prices fell to their lowest level since Nov. 25 on fears of a potential slowdown in U.S. exports of related diesel fuel. Latest U.S. government data show that 42% of record-high exports of distillate fuel (diesel/heating oil) in September were bound for Europe.
Light, sweet crude oil for January delivery on the New York Mercantile Exchange settled 2.1%, or $2.15 a barrel, to $98.34 a barrel. The price is the lowest since Nov. 28 and the decline was the biggest since Nov. 17. ICE North Sea Brent crude oil for January settled $1.42 a barrel, or 1.3%, lower at $108.11 a barrel. That's the lowest price since Nov. 25.
"The situation in Europe swings between optimism and pessimism every single day," said Tom Bentz, director at BNP Paribas Prime Brokerage in New York. "Lately, the market has built in a lot of optimism and I'm afraid of a letdown."
The oil price weakness comes as U.S inventories of crude oil, gasoline and heating oil all showed larger-than-expected increases last week, according to a report Wednesday by the Energy Information Administration.
The rise in crude oil stocks pushed inventories above the five-year average level by 4.5 million barrels. Just two weeks ago, stocks were 3.6 million barrels below that mark. But because of rising refiner processing, crude stocks now cover just 22 days of refiner demand, the lowest level in three years and slightly less than the five-year average. In the key Gulf Coast refining region, crude stocks cover 21 days of refiner demand, the lowest level in four years, EIA data show.
Higher refinery operations pushed distillate output to a record high above 5 million barrels a day. U.S. demand for the fuel was up 7% from a year ago, while exports were up 21.7% from a year ago, according to most recent monthly data, for September. Distillate exports to Europe in September averaged 390,000 barrels a day, or 42% or record exports of 931,000 barrels a day in the month, EIA data show. U.S. distillate stocks are 2.5% below the five-year average for this time of year, but that's the slimmest gap since October.
"Europe is more of a distillate economy and Europe is a large buyer of our exports," said Andy Lipow, president of Houston-based Lipow and Associates. A slowdown in Europe would cut demand for those exports, he said.
The EIA also showed gasoline demand fell to a 10-year low for the week. Inventories hit a two-month high of 215 million barrels and were 4% above the 5-year average. That level of supply would cover 25 days of current demand, the highest level for the week since 1999.
Nymex heating oil for January delivery settled 5.26 cents, or 1.8%, lower at $2.9298 a gallon. That's the lowest price since Nov. 25 and the drop was the biggest in a week.
Reformulated gasoline blendstock futures for January settled 2.03 cents lower at $2.566 a gallon, a one-week low.
Copyright (c) 2012 Dow Jones & Company, Inc.
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