Oil Erases 2011’s Gains as Commodities Tumble on Economy Concern

Oil Drops in New York
Crude oil wiped out all of its gains for 2011 and natural gas traded below $4 for the first time since April in New York as concern the global economy is weakening sent raw materials prices tumbling around the world. Photographer: Andrew Harrer/Bloomberg

Crude oil wiped out all of its gains for 2011 and natural gas closed below $4 for the first time since March in New York as concern the global economy is weakening sent raw materials prices tumbling around the world.

Twenty-one of the 24 commodities on the Standard & Poor’s GSCI Index declined slipped as a rout in equities drove the Standard & Poor’s 500 Index to its worst nine-day slump since March 2009. Silver dropped 5.6 percent, gold retreated from a record and wheat slumped the most since June.

“There’s a lot of pessimistic news on the macro-economic front and that’s hitting commodities,” said Michael Wittner, the head of oil-market research at Societe Generale SA in New York and the fourth-most-accurate forecaster for West Texas Intermediate oil among 26 analysts ranked by Bloomberg in the past eight quarters. “If the economy continues to slow, demand for oil will take a hit.”

U.S. consumer confidence dropped last week to the lowest level in more than two months, paced by growing dissatisfaction among women and high earners, a report today showed. The Bloomberg Consumer Comfort Index was minus 47.6 in the period to July 31, the lowest level since May, compared with minus 46.8 the prior week.

Consumer spending dropped in June for the first time in almost two years as savings climbed, Commerce Department figures showed earlier this week. The U.S. economy grew less than forecast in the second quarter after almost stalling at the start of the year, another report from the agency showed.

Commodity Slump

The S&P’s GSCI Index of 24 raw materials fell 4 percent to 644.95, the lowest level since June 27. The index is up 2.1 percent this year after being as much as 20 percent higher on April 11.

Crude oil for September delivery declined $5.30, or 5.8 percent, to $86.63 a barrel on the New York Mercantile Exchange, the lowest settlement since Feb. 18. Brent for September settlement fell $6.25, or 5.5 percent, to end the session $107.25 a barrel on London’s ICE Futures Europe exchange.

“There’s a growing realization that we may be facing a double dip or at least very anemic growth,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at Manulife Asset Management in Boston. “Until the economy shows signs of life, there’s nothing to turn this around.”

Stocks Fall

The Standard & Poor’s 500 Index fell 4.8 percent to 1,200.07 and the Dow Jones Industrial Average declined 4.3 percent to 11,383.68.

The euro weakened 1.6 percent to $1.4092 from $1.4323 yesterday. A stronger U.S. currency reduces the appeal of dollar-denominated raw materials as an investment.

“Fear and panic are good words to describe what we’re seeing today,” said Chris Barber, a senior analyst at Energy Security Analysis Inc. in Wakefield, Massachusetts. “Anytime markets move this hard there’s been a change in sentiment.”

Copper fell $182, or 1.9 percent, to $9,353 a metric ton on the London Metal Exchange, bringing the drop this year to 2.6 percent. Aluminum fell 1.7 percent to $2,482 a ton, the seventh consecutive decline and the longest losing streak since January 2009.

“Sentiment has taken its turn for the worse at the moment,” said Gayle Berry, an analyst at Barclays Capital in London. “The markets are very worried about what the implications of fiscal austerity mean for the trajectory of economic growth, and therefore for metals demand.”

Silver Slides

Silver futures for September delivery fell $2.327, or 5.6 percent, to $39.431 an ounce on the Comex in New York, the biggest drop since May 11.

Gold futures for December delivery fell $7.30, or 0.4 percent, to settle at $1,659 on the Comex. Earlier, the price climbed as much as 1.1 percent and slid 1.4 percent. The metal reached an all-time high for the third straight day.

Palladium futures for September delivery tumbled $42.15, or 5.3 percent, to $752.95 an ounce on the New York Mercantile Exchange and platinum futures for October delivery fell $55.60, or 3.1 percent, to $1,729.40 an ounce. Both metals are used in catalysts to remove exhausts in automobiles, and are more dependent on economic growth than gold.

Agriculture was the second-worst sector today after energy. Wheat fell 3.3 percent to $7.255 a bushel on the Chicago Board of Trade. Soybeans declined 2 percent to $13.4525 a bushel and corn dropped 1.6 percent to $7.015 a bushel.

“The world economy is struggling, and that is slowing demand,” said Don Roose, the president of U.S. Commodities Inc. in West Des Moines, Iowa.