Crude oil futures fell sharply in Asian trading Thursday on news the U.S. Fed may begin pulling back its stimulus efforts later this year and sentiment worsening due to concerns over Chinese demand.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in July traded at $96.56 a barrel at 0608 GMT, down $1.68 in the Globex electronic session. August Brent crude on London's ICE Futures exchange fell $1.56 to $104.56 a barrel.
Prices started their decline in overnight trading after Federal Reserve Chairman Ben Bernanke late Wednesday said the central bank may begin pulling back on stimulus efforts later this year.
Crude settled little changed on Wednesday, as traders digested what an upgrade of the U.S. economic outlook by the Federal Open Market Committee would mean for oil demand.
But after market close, Bernanke's comments on a possible end to the monetary easing policy, which helped stimulate growth in the U.S. as well as demand for oil, turned sentiment bearish.
"[We] believe the Fed may start tapering its asset purchases in September, a potential headwind for exchange-traded commodity prices despite seasonally better demand," said analysts at ANZ.
Fresh fears about Chinese demand also weighed on prices, after HSBC's preliminary manufacturing data for June fell to its lowest level in nine months. Traders watch closely for any indications of slowing economic growth in China, as the country's rising oil demand has been a main driver for higher oil prices in recent years.
The drop in prices on Thursday came after oil rose 7% to 8% since the beginning of the month on geopolitical tension arising from the conflict in Syria and a weaker dollar. However, the U.S. currency strengthened following the Federal Reserve meeting, adding pressure on oil prices. As the greenback strengthens, dollar-denominated oil becomes more expensive for buyers using other currencies.
Crude prices were also pressured by data showing U.S. crude inventories unexpectedly rose by 300,000 barrels to 394.1 million barrels for the week ended June 14, just 1% below a record high. Most analysts had expected a drop in inventories.
"In most respects, there is a lot of risk at current price levels," said Ric Spooner, chief market analyst at CMC Markets, pointing to the current supply-demand dynamics and the strength in the U.S. dollar.
While "the general outlook is negative," geopolitical tensions in Syria and the Middle East could change sentiment," he said.
Nymex reformulated gasoline blendstock for July--the benchmark gasoline contract--fell 424 points to $2.8500 a gallon, while July heating oil traded at $2.9299, 426 points lower.
ICE gasoil for July changed hands at $887.00 a metric ton, down $10.75 from Wednesday's settlement.
Copyright (c) 2012 Dow Jones & Company, Inc.
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