Crude oil tumbled below $100 a barrel as commodities dropped the most in two years on concern that economic growth will slow and as the dollar strengthened against the euro.
Oil fell 8.6 percent after the Labor Department said applications for jobless benefits rose to the highest level since August, a signal that fuel demand may drop. Silver led declines in the Thomson Reuters/Jeffries CRB Index. The dollar advanced after European Central Bank President Jean-Claude Trichet said he wouldn’t raise interest rates.
“We’ve got a bit of a blood bath going on now,” said Peter Beutel, president of trading advisory company Cameron Hanover Inc. in New Canaan, Connecticut. “Once the ECB refused to raise rates we saw the dollar take off and the drop in commodities accelerate.”
Crude oil for June delivery fell $9.44 to $99.80 a barrel, the lowest settlement on the New York Mercantile Exchange since March 16. Futures have tumbled 12 percent over the past four days and had the biggest one-day decline since April 20, 2009. Prices are up 25 percent from a year ago.
Crude oil may drop as low as $98 a barrel after breaching technical support to settle below its 30-day moving average for the first time since February, according to technical analysis from Again Capital LLC.
Futures declined from the settlement, falling as low as $98.25 a barrel in after-hours electronic trading on the Nymex. The exchange extended the trading limit for a one-day move in crude to $20 from the usual $10 after the close of floor trading. When the limit is reached, the exchange halts trading beyond it for five minutes.
The dollar increased as much as 2.1 percent to $1.451 per euro, the highest level since April 26. A drop in the greenback makes commodities priced in the U.S. currency more attractive for investors.
“The euro is getting pounded and that’s putting pressure on all of the commodities,” said Stephen Schork, president of market consultants The Schork Group Inc. in Villanova, Pennsylvania. “Markets fall faster than they rise.”
Economists forecast 410,000 U.S. jobless claims, according to the median of 46 projections in a Bloomberg News survey. A report tomorrow is anticipated to show employers in the world’s largest economy hired 185,000 additional workers in April.
Factory orders in Germany unexpectedly dropped in March. Orders, adjusted for seasonal swings and inflation, fell 4 percent from February, the Economy Ministry in Berlin said today. Economists had forecast a gain of 0.4 percent, according to the median of 22 estimates in a Bloomberg News survey.
“The spike in weekly jobless claims here and the drop in German factory orders today follow a series of weak economic data points,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The ECB is stepping back from tightening, which is ending the commodity inflation trade. This is a significant recasting of the environment.”
The Thomson Reuters/Jefferies CRB Index of 19 raw materials dropped 4.9 percent to 341.07, the lowest level since March 16. All but one of the commodities were down, led by silver’s losses. The CME Group Inc. raised margin requirements for the precious metal by 84 percent in less than two weeks.
“We clearly had a combination of a commodity bubble and security premium pushing prices higher,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The commodity bubble burst with the increase in silver margins and the killing of Osama bin Laden has reduced the security premium.”
Terrorist leader bin Laden was killed on May 1 during a U.S. raid in Pakistan. Bin Laden targeted oil facilities as a way to damage the U.S. and European economies.
Oil has climbed 9.2 percent in New York this year as unrest toppled leaders in Tunisia and Egypt and spread to Libya, Algeria, Bahrain, Iran, Oman, Syria and Yemen.
Brent crude oil for June settlement plunged $10.39, or 8.6 percent, to $110.80 a barrel on the London-based ICE Futures Europe exchange. Futures fell to $109.02, the lowest price since March 16.
U.S. gasoline consumption dropped 2.2 percent to 8.94 million barrels a day last week, an Energy Department report showed yesterday. Total fuel demand slipped 6.4 percent to 18.3 million barrels a day, the lowest level since November 2009.
“Today’s jobs numbers were poor, adding to the perception that the economy is moving back into a period of malaise, which would lead to a drop in energy demand,” said Phil Flynn, vice president of research at PFGBest in Chicago. “Weak demand could previously be blamed on lousy weather. Now we’re probably seeing the impact of high prices and a weaker economy.”
Gasoline for June delivery tumbled 22.71 cents, or 6.8 percent, to settle at $3.0954 a gallon in New York, the lowest intraday price since March 30.
Regular gasoline at the pump, averaged nationwide, increased 0.3 cent to $3.985 a gallon yesterday, the most since July 24, 2008, AAA said on its website.
Oil volume in electronic trading on the Nymex was 1.05 million contracts as of 3:48 p.m. in New York. Volume totaled 610,259 contracts yesterday, 15 percent below the average of the past three months. Open interest was rose to a record 1.63 million contracts.