Oil Sees Biggest One-Day Dollar Drop in 17 Years
Crude prices fell 4.5 percent Wednesday on concerns that a big U.S.-led economic slowdown could further undermine global energy demand. The decline of $4.94 per barrel marked oil's biggest one-day drop in more than 17 years.
The steep losses came during a volatile week in commodity and equity markets as dealers weighed signs of recession against aggressive interest rate cuts by the U.S. Federal Reserve to counter the slowdown.
U.S. crude settled down $4.94 to $104.48 a barrel, down from a record $111.80 hit Monday. London Brent crude fell $4.84 to $100.72. The drop marked the biggest one-day dollar decline in the price of oil since Jan. 17, 1991.
"People are looking at the macro picture and are worried about the economy,'' said Mike Fitzpatrick, vice president at MF Global in New York. But he added "the wide swings in prices during the past few days point to uncertainty both for bulls and bears.''
A report from the U.S. Energy Information Adminstration showed U.S. demand for gasoline over the past four weeks running 0.1 percent below last year. Demand for distillate fuels like diesel, jet fuel and heating oil lagged by 5.4 percent.
"Higher prices for gasoline and heating oil may have finally reached a level where consumers have altered their energy consumption habits,'' said Chris Jarvis, senior analyst at Caprock Risk Management.
The soft demand figures outweighed concern over the report's bigger-than-expected declines in refined fuel stockpiles last week and a smaller-than-expected build in crude, analysts said.
U.S. distillate inventories dipped to their lowest level since June 2005 while gasoline stocks eased slightly below their 15-year high, according to the EIA report. Crude inventories, meanwhile, rose a modest 200,000 barrels, leaving them 3.7 percent below last year.
Analysts said part of the reason for lower inventories of refined products was a reduction in refinery activity because of poor profit margins in the midst of softer demand.
"The drop in the (refinery activity) appears to reflect some voluntary run cuts due to a poor margin environment,'' said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.
Recent price strength across the commodities complex was driven in part by the weakness of the U.S. dollar, which briefly rebounded on Wednesday, and interest rate cuts by the Federal Reserve.
But investors who had viewed dollar-denominated commodities as the best place to put their cash are growing worried that recession will erode demand for raw materials, analysts said.