Crude Ends at 2012 Low on Supply Rise, Demand Drop

Crude oil futures prices settled at a fresh seven-month low, breaking below $90 a barrel Wednesday, as the latest U.S. weekly oil data showed stockpiles remaining at 22-year highs amid sluggish demand.

Cracking the $90 level may set the stage for prices to fall to $85 a barrel or lower, several traders said.

"Can we touch $75? It's only another $15. That's not unreasonable in my opinion," said Kyle Cooper, managing partner at IAF Energy Advisors.

U.S. benchmark crude oil futures on the New York Mercantile Exchange have fallen by 15.3%, or $16.26 a barrel, since May 1, as crude oil inventories continued to grow and demand for key petroleum products, such as gasoline, has been weak.

The Energy Information Administration said Wednesday crude oil stocks rose 883,000 barrels last week to 382.5 million barrels, the most since Aug. 3, 1990. Stockpiles have gained by 10.5%, or 36.2 million barrels, over the past nine weeks. The surplus of crude stocks to the five-year average has ballooned to 8.4%, or 29.8 million barrels, from less than 6 million barrels since the buildup began in mid-March.

Ahead of the peak driving season, demand for gasoline, the most widely used petroleum product in the world's biggest oil consumer, hit a 12-year low for the week, at 8.6 million barrels a day, the EIA data show.

"The bears are in control and keep wanting to drive it lower and we haven't seen any factor to shake them out of it," said Gene McGillian, broker and analyst at Tradition Energy.

Nymex light, sweet crude oil for July delivery settled lower by $1.95, or 2.1%, at $89.90 a barrel, the lowest price since Oct. 21, 2011.

ICE North Sea Brent crude for July fell 2.6%, or $2.83 a barrel, to $105.56, the lowest level since Dec. 19.

The skidding euro--which fell to its weakest level against the dollar since July 2010--also prompted selling in oil and across many markets. Worries that Greece, in an effort to patch up its troubled economy, may exit the euro zone lifted the dollar against the European common currency, giving traders further excuse to avoid dollar-denominated oil futures.

Strength in the dollar and the worries about a potential contagion effect of economic instability through the euro-zone nations stung oil futures as the market already is witnessing steady shrinkage in the "war premium" that has grown over the past several months amid an impasse with Iran and the world's major powers over Tehran's nuclear program.

United Nations nuclear officials said a tentative deal has been reached with Iran to open controversial sites for inspection as major international talks on the issue were about to get underway in Baghdad. The potential breakthrough comes as a July 1 European Union embargo on imports of Iranian crude looms and Saudi Arabia and others in the Organization of Petroleum Exporting Countries have boosted output sharply to cover potential lost oil supplies from Iran.

Past threats from Iran to block the key Strait of Hormuz, the export route for critical Persian Gulf oil supplies, has inflated prices by $15 to $20 over the past several months, market participants said. OPEC's explicit efforts to pull prices down to around $100 by raising supply has contributed to an aggressive selloff.

"With weak equities, slow demand and Iran playing nice, why do you want to own crude?" said IAF Energy's Cooper.

Tony Rosado, a broker at GA Global Markets, noted that Saudi Arabia's aim of pushing the price of international crudes, like European benchmark Brent, down to around $100 a barrel "would make the case for $85" for the U.S. benchmark, given the recent spread.

Last October, when Nymex crude last traded near $90, it was "on a trampoline," rising sharply from around $75 a barrel, said Matt Smith, analyst at Summit Energy. Traders said that sharp rise of $15 in 15 days seven months ago suggests potential for an erratic move downward.

"The market is hunting for a bottom and it hasn't found it yet," said Tradition Energy's McGillian.

Reformulated gasoline blendstock futures for June delivery were 6.47 cents lower at $2.8723 a gallon, the lowest since Feb. 2. June heating oil settled 4.93 cents lower at $2.8121 a gallon, the weakest since Dec. 19.


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