OIL FUTURES : Crude Tumbles as Traders Fear Demand Slowdown

10/03/2012| 03:31pm US/Eastern

Recommend:

0

--Crude drops as China service-sector data shows weakness

--Nymex crude futures fall $3.75 to $88.14/bbl

--"The market now is very vulnerable," says energy trader.

 
   By Jerry A. DiColo 
 

NEW YORK--Crude-oil futures tumbled 4.1% Wednesday, as data out of China showed slowing economic growth and added a new worry to investors' concerns about global fuel demand.

Light, sweet crude for November delivery settled $3.75 lower at $88.14 a barrel on the New York Mercantile Exchange, a two-month low. Europe's benchmark Brent crude fell $3.66 to $107.91 a barrel.

Prices fell throughout the session Wednesday, sparked by a reading of China's service sector that showed less expansion in September than the previous month, while consumer sentiment in the country fell for the third straight month. China is expected to represent 10.6% of global crude-oil demand this year, and any further weakness in the country's economy could quickly translate to lower global fuel usage.

"People are realizing that China is in a worse condition than they thought it was six months ago," said Mike Guido, head of energy hedge fund sales at Macquarie Group. "Today's move is a very big cash-out...the market now is very vulnerable."

Signs of slowing growth in China, coupled with economic weakness in Europe and falling fuel usage in the U.S., has some investors expecting that there is plently of oil supply to meet global demand this year.

Wednesday's drop came as weekly data from the U.S. Department of Energy showed that domestic oil production rose to 6.52 million barrels a day, the highest level since December 1996, and 12.4% higher than the output last year. U.S. gasoline demand fell 3.6% from last year to a 10-year low for this time of year.

Oil prices have fallen 11% from a four-month high of $99 a barrel hit on Sept. 14. Less than a month ago, the announcement of a new round of stimulus from the Federal Reserve buoyed crude, stocks and other commodities markets. But in recent days, crude-oil futures began to slump even as stock markets continued to move higher.

"Lately, they have not been well correlated," said Andy Lebow, an energy broker at Jefferies Bache in New York. "Oil is more focused on supply and demand. Demand is not growing and supplies are."

Meanwhile, concerns have begun to fade about possible military conflict between Israel and Iran, with fewer traders willing to bet that a supply disruption in the Middle East will send prices soaring.

"The only thing that has kept crude up has been the situation with Iran and Israel," said Tariq Zahir, managing member of Tyche Capital Advisors. Now, he said, "people are looking back to the fundamentals."

Front-month November reformulated gasoline blendstock, or RBOB, settled 6.97 cents, or 2.4%, lower at $2.7995 a gallon. November heating oil settled 5.91 cents lower $3.0664 a gallon.

More information on settlements and highs and lows for futures on Nymex and ICE platforms can be found by searching for the following headlines:

   Nymex Light Crude Oil Close 
   Nymex Harbor RBOB Gasoline Close 
   Nymex Heating Oil Close 
   ICE Brent Crude Oil Close 
   ICE Gas Oil Close 
 

-Write to Jerry A. DiColo at jerry.dicolo@dowjones.com

0