Oil in New York tumbled below $80 a barrel and Brent crude fell under $90 as reports signaling a global economic slowdown added to concern that demand will slow amid rising supplies.
Futures dropped 4 percent, the most this year, as manufacturing slumped in the U.S., China and Europe, applications for U.S. unemployment benefits exceeded estimates and sales of existing homes were lower than expected. Oil stockpiles rose last week to the most since 1990, the Energy Department reported yesterday.
“The oil market is finally starting to catch up with the weak fundamentals,” said Rick Mueller, a principal with ESAI Energy LLC in Wakefield, Massachusetts. “The U.S. and Chinese economies are looking weaker, which is raising concerns about demand during the second half of the year.”
Crude futures for August delivery fell $3.25 to $78.20 a barrel on the New York Mercantile Exchange, the lowest settlement since Oct. 4. The price is down 21 percent in 2012.
Brent oil for August decreased $3.46, or 3.7 percent, to $89.23 a barrel on the London-based ICE Futures Europe exchange, the lowest settlement since December 2010. The European benchmark’s premium to West Texas Intermediate settled at $11.03, the lowest level since January.
“Fears about the economy are making people very leery,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The jobless claims, the manufacturing data and all the economic data are coming together to push almost everything down.”
Manufacturing in the Philadelphia region shrank in June, the Federal Reserve Bank of Philadelphia’s general economic index showed. Analysts predicted no change. Factory output also declined in Europe and China as Europe’s worsening fiscal situation clouded global economic-growth prospects.
U.S. crude inventories increased 2.86 million barrels to 387.3 million barrels last week, the highest level since July 1990, the Energy Department reported yesterday. Stockpiles of distillate fuel and gasoline also increased.
“People are just killing everything on global economic concern,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “Supply is just overwhelming right now. There’s not a lot of reasons to be aggressive on the long side.”
U.S. jobless claims decreased by 2,000 to 387,000 in the week ended June 16, the Labor Department said. The median forecast of economists surveyed by Bloomberg called for 383,000. The four-week average, a less volatile measure, climbed to the highest level of the year.
The National Association of Realtors said purchases of existing U.S. properties dropped and the Bloomberg Consumer Comfort Index showed the fewest Americans in five months said the economy was improving in June.
“It doesn’t look like the economy is taking off anytime soon and oil demand is pretty poor,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “That’s hurting oil prices. There is certainly a huge build overall across the oil complex.”
Prices also dropped as the euro weakened against the dollar and as U.S. stocks slipped. The European currency slipped as much as 1.4 percent. A declining euro reduces oil’s appeal as an investment alternative.
The Standard & Poor’s 500 Index declined 2.2 percent. The Standard & Poor’s GSCI Index of 24 commodities fell 2.8 percent.
“Oil is participating in the broad decline of equities and commodities,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “We broke an extremely key level for oil, the previous monthly low around $81.”
The relative strength index, or RSI, of front-month oil futures fell to 22.22. The RSI, which identifies possible turning points in markets, dropped to 16.3 on June 1, the lowest level since February 1986.
Crude has dropped 6.9 percent this week as economic data have missed expectations. Yesterday, Federal Reserve officials cut their estimates for 2012 growth after last month’s slowdown in hiring and said they expect little progress on unemployment during the rest of the year.
“The oil market is taking the Fed statement as a bearish sign,” said Carl Larry, president of Oil Outlooks & Opinions LLC in New York. “Commodities are overly sensitive to the Fed.”
Electronic trading volume on the Nymex was 660,771 contracts as of 3:23 p.m. in New York. Volume totaled 798,769 contracts yesterday, 44 percent above the three-month average. Open interest was 1.41 million.