Crude-oil futures prices slid for a second day Thursday, hit by rising U.S. oil supplies and new worries about economic recovery in the world's biggest oil consumer.
After a steep 2.8% drop Wednesday after news that U.S. crude-oil stocks climbed to their highest end-March level since 1931, crude prices shed a further 1.3% after U.S. initial claims for jobless benefits rose by more than expected last week, reaching their highest level since November.
The setback in the jobs picture presents further worries about the potential for the already slim growth expected in U.S. oil demand this year. The Energy Information Administration sees U.S. oil use up a fractional 0.2% this year, following last year's drop to a 16-year low.
Light, sweet crude oil for May delivery on the New York Mercantile Exchange fell $1.19 to settle at $93.26 a barrel, a two-week low. Crude fell intraday to a low of $92.12 a barrel, down $5.68, or 5.8%, from the session high of $97.80 hit Monday. The U.S. benchmark shed $3.93, or 4%, over the past two trading days.
ICE North Sea Brent crude oil settled 77 cents lower, at $106.34 a barrel, the lowest price since early November. Brent shed $4.74, or 4.3%, a barrel in the past two days, stung by increased output and greater competition between rising domestic U.S. oil supplies and imports in the key U.S. Gulf refining hub.
The sharp reversal in prices comes as money managers are stepping away from heavy bets on rising prices as supplies are increasing and economic worries threaten demand growth.
"The primary driver is the economic outlook, and how that's going to play out is a tough question to answer," said Gene McGillian, broker and analyst at Tradition Energy. "Until we see signs of economic improvement we're like to be between $90-$95" a barrel, he said.
U.S. crude oil prices could drop to five-month low of $85 a barrel in coming weeks, if money managers cut heavy bets on higher prices, said Citi Futures analyst Tim Evans, who also sees potential for Brent to fall to a nine-month low near $100 a barrel.
"We have seen a lot of speculative froth come into the market recently," said Kyle Cooper, analyst at IAF Advisors. Money managers lifted their net long position in Nymex crude futures and options by 16% last week, helping drive prices to the seven-week intraday high of $97.80 a barrel hit Monday.
U.S. crude oil stocks rose by 2.7 million barrels, nearly twice the expected level, last week to 388.6 million barrels, according to the federal Energy Information Administration. EIA data show stocks are the most at the end of March since 1931 and are the highest in any week since July 1990.
Early data show refiners boosted crude oil processing to its highest March level in six years, meaning inventories of refined products such as gasoline and diesel fuel are expected to be ample as the spring-summer driving season approaches.
By lifting crude oil runs to the highest level since early January, refiners are erasing earlier worries about potential tight supplies and sending prices lower.
When refinery operating rates dropped to two-year lows in early March, reformulated gasoline futures climbed to a six-month high near $3.27/gallon. With crude runs up by 7% from a month ago, RBOB futures prices have tumbled by 12%, or 40 cents a gallon, in the past four weeks.
May-delivery reformulated gasoline settled 1.53 cents lower, at $2.8987 a gallon Thursday, the lowest price since Feb. 27. The contract has dropped 6.8%, or 21.2 cents, in the past five sessions.
May heating oil settled 3.84 cents, or 1.3%, lower at $2.9636 a gallon Thursday and has fallen 12.4 cents, or 4%, in the past two sessions.
Copyright (c) 2012 Dow Jones & Company, Inc.
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