U.S. crude futures dropped 2.3% Wednesday on a sharp bout of midmorning selling that also pulled down gasoline prices as some investors grow concerned that high prices at the pump could crimp demand.
Oil fell to the lowest level in over a month, dropping below $95 a barrel after trading volume surged in March and April futures just after 11:00 a.m. EST.
After trading below 2,000 contracts per minute through most of the session, nearly 10,000 lots of April crude-oil futures changed hands at 11:01 a.m. EST.
The move spooked many investors and traders who have grown concerned about rising bullish bets on oil and gasoline.
"The volume spike, and the front-month going off the board hit the market," said Tariq Zahir, managing member and oil trader at Tyche Capital Advisors.
Light, sweet crude for March delivery settled $94.46 a barrel on the New York Mercantile Exchange, down $2.20. The March futures contract expired at settlement Wednesday, and the more-actively traded April futures settled $1.88 lower at $95.22 a barrel.
Brent crude for April delivery was 1.9% lower at $115.30 a barrel.
Crude-oil futures have been stuck in a tight trading range between $95 and $98 a barrel for over a month. While investors have grown optimistic about the U.S. economic recovery, many are increasingly concerned that high gasoline prices could result in lower demand from drivers wary of high prices.
U.S. retail gasoline prices stood at $3.766 a gallon Wednesday, according to the AAA FuelGauge report, up from $3.305 a gallon a month ago.
After hitting a four-month high above $3.12 a gallon last week, gasoline futures have slumped. Front-month March reformulated gasoline blendstock, or RBOB, settled 6.17 cents, or 2%, lower at $3.0595 a gallon Wednesday.
Traders have piled into bullish bets on oil in recent months. Last week, the net-long position of hedge funds and other money managers stood at 209,565 contracts, according to the Commodity Futures Trading Commission, the highest level since March.
"There have been a lot of speculators in this market, so it could be time for it to correct," said Andy Lebow, a broker at Jefferies Bache.
March heating oil settled 2.43 cents lower at $3.1563 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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