Oil futures retreated below $100 a barrel on Wednesday as stock markets declined, but the prospect of additional sanctions on Iran kept a floor under prices.
Light, sweet crude for February delivery settled down $1.98, or 2%, to $99.36 or a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange settled down $1.71, or 1.6%, to $107.56 a barrel.
Futures pushed even deeper into negative territory in after-hours trading. The Nymex contract recently fell $2.06, or 2%, to $99.28 a barrel after an industry group posted a steep increase in U.S. crude-oil inventories last week.
Wednesday's retreat in Nymex crude marked the contract's first decline after six sessions of gains, and was fueled largely by a selloff in the equities market. Crude prices have tracked equities closely the last several months, as oil traders look to financial markets for clues about broader economic sentiment.
The Dow Jones Industrial Average was recently off 1.1% to 12160.6, as concern mounted ahead of an Italian debt auction scheduled for Thursday.
"You'd think oil would be up, with the rhetoric back and forth with Iran, but it's just following the stock market," said Mark Waggoner, president of Excel Futures in Bend, Ore. He added: "Everyone's still worried about Europe."
The decline marked a quick end to Nymex crude's stay above $100 a barrel, a psychological threshold that the contract has crossed numerous times over the last two months.
Futures pushed even lower after the market close after the American Petroleum Institute said U.S. oil inventories rose 9.6 million barrels last week. Analysts polled by Dow Jones Newswires expected inventories would fall 2.2 million barrels.
Tensions with Iran, however, continue to keep a floor under prices, and traders are awaiting signs of what is next. On Tuesday, the stand-off between Iran and the West intensified after Iran threatened to close the Strait of Hormuz if the West presses forward with an oil-export ban. The move sent oil prices vaulting above $101 a barrel for the first time in nearly two weeks.
Iran is the world's third-largest oil exporter and borders the Strait of Hormuz, which handles a third of the world's ocean-borne oil. Tensions with Iran were the main driver behind the six-day climb in oil prices that ended Wednesday. In recent weeks, Iran has conducted military exercises near the strait.
The threat of additional sanctions on Iran is aimed at pressuring the country's nuclear program. Iran has said its nuclear program is for peaceful purposes only, but the International Atomic Energy Agency in early November published a report accusing the country of taking steps toward nuclear weapons development.
Despite those concerns, trading volumes remained thin Wednesday due to the typical holiday season slowdown. On Wednesday, about 250,000 Nymex contracts traded hands, less than half their normal level.
Thin volumes can lead to large intraday swings in price, as smaller trades have an outsized impact. Traders also tend to put less stock in sessions with thin volume.
"The volume has been light on the way up. It's still light on the way down," said Tom Bentz, a director at BNP Paribas Prime Brokerage Inc. in New York.
Front-month January reformulated gasoline blendstock, or RBOB, settled down 3.75 cents, or 1.4%, to $2.6513 a gallon. January heating oil settled down 1.51 cents, or 0.5%, to $2.8934 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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