Cyber Monday Deal: Up to 60% off InvestingProCLAIM SALE

UPDATE 12-Brent oil drops nearly $4 as recession fears grow

Published 08/18/2011, 03:55 PM
MS
-
GC
-

* Investors sell off oil, commodities, equities

* U.S. crude down 14 percent so far in August

* U.S. bans imports of Syrian oil

* Fed scrutinizing European banks' U.S. units-report (Updates prices, adds details)

By Matthew Robinson and David Sheppard

NEW YORK, Aug 18 (Reuters) - Brent crude oil fell nearly $4 a barrel on Thursday as a raft of weak U.S. economic data provided a fresh blow to shaky investor confidence, while U.S. crude's losses extended to 14 percent so far in August.

Equities plunged, volatility jumped and gold hit a fresh record as traders said fears of a new recession were growing again, sparking another round of risk aversion reminiscent of the violent sell-offs at the start of this month.

Thursday's declines follow a short-lived rebound that had seen Brent crude climb by around $9 in the previous six sessions.

"It's much of the same -- concerns over European banks, U.S. deficits weighing on economic growth and the possibility of a global recession as the end result," said Chris Jarvis, senior analyst for Caprock Risk Management in Hampton Falls, New Hampshire.

"These cross currents are driving wild swings for riskier asset classes such as equities and commodities, specifically crude oil. Until clarity improves, we expect volatility to remain elevated relative to historical norms."

Brent crude fell $3.61 to settle at $106.99 a barrel, breaking below the 200-day moving average, a key technical indicator closely watched by traders.

U.S. crude oil settled down $5.20, or nearly 6 percent, at $82.38 a barrel. Selling accelerated after the settlement, with prices dropping down to $81.15 a barrel.

The losses pushed U.S. oil below 35 on the 14-day relative strength index, approaching the 30 level which is frequently seen as a sign of a commodity being oversold. U.S. crude's discount to Brent widened to near $25 a barrel, but still off the record over $26 hit earlier in August.

Early pressure from disappointing U.S. weekly jobless claims and July home sales reports sparked a steep sell-off mid-morning. Selling then intensified after a report showed factory activity in the U.S. Mid-Atlantic region in August dropped to the lowest level since March 2009. [ID:nN1E77H0E8]

U.S. trading volumes were relatively strong, up 22 percent over the 30-day average, topping 800,000 lots shortly after the settlement. Brent trade was more subdued, slightly over that average.

Implied volatility in the oil market soared, with the Chicago Board Options Exchange's Oil Volatility Index <.OVX> hitting 54.23 percent, its highest level in more than a week and snapping a steady downtrend. [ID:N1E77H0J2]

SAFER HAVENS

"The market is in meltdown mode; the data continues to stink. I don't know that there's much more to be said. We continue to be in a soft patch," said Sal Catrini, managing director for equities at Cantor Fitzgerald & Co in New York.

The dollar rose and gold hit a new record of $1,825.99 an ounce as investors sought safe havens away from equities and industrial commodities.

U.S. stocks tumbled 4 percent and the Reuters-Jefferies CRB <.CRB>, an index tracking 19 commodities, was down 2.3 percent in the steepest one-day loss since the U.S. credit downgrade earlier this month by Standard and Poor's.

Analysts have revised down forecasts for fuel consumption in recent weeks as concerns about global growth rose, with Morgan Stanley the latest bank to cut its forecast for global gross domestic product in 2011 and 2012. [ID:nL3E7JI1LM]

Concerned the European debt crisis might spread to U.S. banks, the Federal Reserve Bank of New York has asked for more information about whether the U.S. units of big European lenders have reliable access to funds needed to operate, the Wall Street Journal reported. [ID:nL5E7JI0Q]

LIBYA, SYRIA

The oil market is also closely watching developments in North Africa and the Middle East. In Libya, where around 1.6 million barrels per day (bpd) of crude production has been cut by a six-month civil war, rebel forces took control of a refinery and blocked a main highway, further isolating Muammar Gaddafi's Tripoli stronghold. [ID:nL5E7JI049]

U.S. President Barack Obama banned U.S. imports of Syrian oil as part of a wider sanctions effort, and joined the European Union in calling for President Bashar al-Assad to step down after a five-month crackdown on protesters. [ID:nL5E7JI2C8]

Brent prices are up by almost 13 percent so far in 2011, in part because of the Libyan outage, but are almost $20 a barrel below the post-2008 peak they hit back in April as European refiners scrambled to find alternatives to Libyan supplies.

"What was announced today will have a very limited impact as it doesn't really prevent anyone from outside the U.S. dealing with Syrian oil," said Greg Priddy, global oil analyst at Eurasia Group in Washington.

"With 95 percent of Syrian oil exports going to the EU, you might see more action there," he added.

Syria produces about 400,000 bpd of oil, exporting most of about 150,000 bpd to European countries, including the Netherlands, Italy, France and Spain.

About 10,000 bpd of Syrian oil products were exported to the United States in the first five months of 2011, out of total imports of near 9 million bpd. (Additional reporting by Gene Ramos, Robert Gibbons, Eileen Moustakis and Selam Gebrekiden in New York, Francis Kan in Singapore and Ikuko Kurahone in London; Editing by Marguerita Choy, Dale Hudson and Sofina Mirza-Reid)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.