By Margot Habiby – Oct 4, 2011
Oil fell for a third day in New York amid concern that fuel demand will drop as investors lose confidence in the economies of the U.S. and Europe.
Futures pared a drop of as much as 3.4 percent after Federal Reserve Chairman Ben S. Bernanke signaled that he may not be finished with attempts to stimulate the economy with unconventional tools. The euro strengthened and equities cut declines that came after European policy makers indicated that they may renegotiate terms of Greece’s bailout.
“Fears of recession are driving us lower,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Until we see some positive signals of the economic front, the market should move lower. We now have to find the next support level, which should be near $70.”
Crude for November delivery dropped 57 cents, or 0.7 percent, to $77.04 a barrel at 11:44 a.m. on the New York Mercantile Exchange. Earlier, it touched $74.95 a barrel, the lowest price since Sept. 24, 2010. Futures are down 16 percent this year.
Brent oil for November settlement fell 98 cents, or 1 percent, to $100.73 a barrel on the London-based ICE Futures Europe exchange. Earlier, it touched $99.11, trading at less than $100 for the first time since Aug. 9.
The Standard & Poor’s 500 Index slid 0.7 percent to 1,091.75. The index touched 1,074.77 in intraday trading, taking it down more than 20 percent from a three-year high in April, the threshold for a bear market. The Dow Jones Industrial Average dropped 137.93 points, or 1.3 percent, to 10,517.37.
The euro gained 0.7 percent to $1.3272 at 11:47 a.m. in New York.
“Bernanke seems to be giving us a little bit of a bounce here, a little bit of confidence back,” said Phil Flynn, vice president of research at PFGBest in Chicago. “Bernanke seems to be giving a little vote of confidence that Europe will take care of the situation there and stocks aren’t falling out of bed anymore.”
The chairman said the central bank “will continue to closely monitor economic developments” in testimony to Congress’s Joint Economic Committee today in Washington.
The Commerce Department also reported orders for U.S. capital equipment increased in August by the most in three months, a sign business investment and exports held up in the face of mounting concern over the European debt crisis.
“As the economy goes, as the equity markets go, so goes the market,” said Carl Larry, director of energy derivatives and research with Blue Ocean LLC in New York. “The issues in Greece and the continued erosion of the U.S. stock market are our clear-cut correlation.”
European finance ministers in Luxembourg considered recrafting a July deal that foresaw investors contributing 50 billion euros ($66 billion) to a 159 billion-euro rescue package for Greece.
Crude also decreased on signs of rising production from Libya. The North African country aims to raise production to more than 500,000 barrels a day by the end of this month, according to Nuri Berruien, the chairman of the state-run National Oil Corp. Its goal of restoring crude production to 1.7 million barrels a day within 15 months is a “conservative figure,” he said yesterday in Tripoli.
Fighting in Libya reduced the availability of light, sweet crude, or oil with low density and sulfur content. The country’s output fell to 45,000 barrels a day in August, according to Bloomberg estimates. The North African nation pumped 100,000 barrels a day last month.
“Libyan production coming back at higher quantities than originally thought is a bit bearish,” said Hannes Loacker, an analyst at Raiffeisen Bank International AG in Vienna, who predicts Brent will average $107 a barrel this quarter. “The most important thing, of course, is the economy and fears of slower growth in the emerging markets are a big driver. Risk is clearly on the downside.”
Goldman Sachs Group Inc. (GS) cut its 2012 forecast for Brent crude. Goldman Sachs said Brent will average $120 a barrel next year, down from $130.
Jeffrey Currie, an oil analyst at Goldman Sachs, cited a “flatter upward trajectory” as he cut his Brent crude prediction. In a separate report, Goldman Sachs cut its global economic growth forecast for this year and next, predicting recessions in Germany and France as Europe stalls and the risk of a contraction in the U.S. grows.