Commodity Corner: Crude Prices Fall In Late-Day Selloff
Oil futures dropped sharply Wednesday in a late-day selloff that knocked 2.5% off the price of a barrel of oil.
Futures prices began dropping fast at 2 p.m., a half hour before the close of the oil market in New York, after a choppy day largely spent treading water. Earlier in the day, prices jumped briefly after a weekly U.S. oil inventory report appeared to reflect bullish oil figures, but quickly fell back.
Oil's drop occurred in tandem with a decline in the equity markets, with the Standard & Poors 500 index dropping 1% at the same time. The drop came almost immediately after the release of the Fed's latest Beige Book report, which found economic growth "modest" or "slight" in most parts of the country, and the jobs market showing little improvement.
Light, sweet crude for November delivery settled down $2.23, or 2.5%, at $86.11 a barrel on the New York Mercantile Exchange. November futures go off the board Thursday. The December contract finished down $2.24, or 2.5%, at $86.29. Brent crude on the ICE Futures Europe exchange ended down $2.76, or 2.5%, at $108.39 a barrel.
Before Wednesday, oil prices had rallied nearly $13 a barrel in the last two weeks, an increase of nearly 17%, and analysts said the
market appeared to be running out of steam. Oil has mostly traded in a range between $80 and $90 a barrel for the last two and a half months, and with prices nearing the high end of that band, analysts said there was not enough justification for it to continue higher. Oil's rise has occurred as optimism grows for a comprehensive solution to Europe's debt crisis--a leadership summit is scheduled for this weekend--though that is beginning to fade.
"Crude has gained a lot of ground here in a very short period of time," said Matt Zeman, market strategist at brokerage Kingsview
Financial. "I really can't come up with a lot of reasons that crude should break out of its trading range. I think a lot of people have
gotten over-zealous and over-optimistic that Europe is going to solve the debt crisis this weekend. One summit with these leaders this
weekend is not going to be the end-all, be-all solution. All the buying you've seen lately in oil, equities, and other risk assets has been premature."
Futures prices got a brief pop Wednesday morning when the U.S. Energy Information Administration released its weekly oil inventory report, appearing to show bullish demand for oil with a draw-down of 4.7 million barrels of crude stocks. But upon closer inspection, another measure of demand, total products supplied, actually fell to a 13-year low for October, which left analysts speculating that oil is being supplied to other markets.
"We're playing hide the barrel," Citi Futures Perspective analyst Tim Evans said in an interview.
Front-month November reformulated gasoline blendstock, or RBOB, finished down 7.54 cents, or 2.7%, at $2.6715 a gallon. November
heating oil finished down 4.65 cents, or 1.5%, at $2.9812 a gallon.