Crude Ends -5.2% At $94.95 On Europe, Demand Worries

NEW YORK (Dow Jones Newswires), Dec. 14, 2011

Crude oil futures prices posted their biggest one-day drop in three months on Wednesday, sliding more than 5% to below $95 a barrel on growing worries about weak oil demand in the U.S. and Europe.

Light, sweet crude oil in New York ended at a six-week low in a racuous selloff that escalated throughout the day. The decline was spurred by the euro's drop to its lowest level against the dollar in 11 months. Investors using foreign currencies steered away from pricier dollar-based commodities, such as crude oil futures.

The euro's anemic showing reinforced worries that the persistent European sovereign debt crisis could trigger a broader recession in Europe, which would slice into global oil demand. Fresh concerns over sluggish oil demand collided with the Organization of Petroleum Exporting Countries's decision to hold output at current levels, which it put at 30 million barrels a day. Analysts said the group's output may be closer to 31 million barrels a day, adding to downward pressure on the price.

OPEC sounded a note of caution about the outlook of the market, saying in a statement that "world oil demand is forecast to increase slightly" next year, but "this rise is expected to be partially offset by a projected increase in non-OPEC supply." The exporters group has projected that world demand for its oil in 2012 will average around 30 million barrels a day, meaning there may little drawdown in inventories that are high in some areas, like the U.S.

The rush to the exits in oil gathered steam after the U.S. Energy Information Administration reported crude stocks fell by less than expected last week, and gasoline inventories rose by more than twice the predicted level. The EIA also said total oil demand in the U.S., the world's biggest oil consumer, lags the year-earlier level by the biggest level in two-and-a-half years.

Front-month crude oil futures in New York broke below the 200-day moving average at $96, igniting a further bout of selling, traders said there was some market positioning to drive prices to near $95 a barrel ahead of crude oil options expiration at Thursday's settlement.

Light, sweet crude oil for January delivery on the New York Mercantile Exchange settled 5.2% lower, at $94.95 a barrel, the lowest price since Nov. 4. The percentage drop was the biggest in a single day since Sept. 22. ICE December Brent crude, which expires at Thursday's settlement, settled $4.48 a barrel lower, at $105.02 a barrel. That's the lowest front-month settlement price since Oct. 5.

"The world is telling us there are very large concerns about the potential for the European economies," said Addison Armstrong, senior director for market research at Tradition Energy.

Armstrong said the OPEC news means supply will be adequate "in a demand environment where Europe is slowing, North America [oil demand] is flat at best and China will probably slow because of Europe."

OPEC's move now means "it's up to Saudi Arabia to decide to make room for Liyba and cut back when that oil comes back fully" after the civil war, said Tom Bentz, director at BNP Paribas Prime Brokerage. "The reality is though, that as long as we have continued problems in Europe, there's potential for negative impact on demand."

The EIA data showed that U.S. oil demand dropped by 1.8 million barrels a day, or 8.9%, from a year ago in the week ended Dec. 9, while ticking up a modest 100,000 barrels a day from a week earlier. The year-on-year drop is the biggest since June 2009.

Refiners showed less demand for crude oil in the week, with imports falling by 1.1 million barrels a day. Refinery crude throughput fell by 590,000 barrels a day. That allows a 1.9-million-barrel drop in stocks, compared with an expected 2.1-million-barrel decline.

Gasoline stocks rose 3.824 million barrels, while a 1.6-million-barrel rise was expected. Demand fell by 7.3% from a year ago.

Distillate stocks were up a slim 48,000 barrels while demand held strong for a second week above 3.9 million barrels a day.

December-delivery heating oil futures settled down 9.89 cents a gallon, at $2.8299 a gallon. The drop was the biggest for a single-day since Aug. 8 and put prices at the lowest level since Oct. 5. Heating oil has been hit by prolonged above-normal temperatures in the Northeast U.S., the nation's main market for the fuel.

Reformulated gasoline blendstock futures for December settled 12.17 cents lower, at $2.5037 a gallon. That's the lowest price since Nov. 25 and the biggest drop since Aug. 4.

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