Singapore: US crude fell below $83 on Friday, heading for its biggest weekly drop since early May, as fears of a global economic slowdown drive investors to the exits in a commodities sell-off that has erased the benchmark’s 2011 price gains.
Brent has dropped nearly 11% and US oil by about 12% this week as concern grows that the world’s largest economy is sliding back into recession, putting oil demand growth at risk. Europe’s escalating debt crisis also threatens to engulf Italy and Spain, two of the region’s top economies.
US crude plunged as much as $3.76 to $82.87 a barrel, the lowest price since 26 November. It was down at $84.90 by 0736 GMT, after plunging almost 6 percent on Thursday, the biggest daily drop since 5 May.
Brent fell as much as $2.95 to $104.30, its lowest since 27 June, after dropping almost $6 in the previous session, and traded at $106.52.
Traders are now awaiting US employment data due later in the day for the latest indication on the health of the economy, after disappointing manufacturing and consumer spending numbers earlier this week.
“People should be very nervous, and they should think that oil demand will be less than expectations,” said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd.
“Even if today’s employment numbers are better than expected, the markets probably need much more to recover. As soon as (Fed Chairman Ben) Bernanke appears, that will be a very positive sign. People are waiting for more quantitative easing.”
French President Nicolas Sarkozy will discuss financial markets with German Chancellor Angela Merkel and Spanish Prime Minister Jose Luis Rodriguez Zapatero, Sarkozy’s office said in a statement, as Thusrday’s rout also signalled fear Europe’s debt crisis is spinning out of control.
The announcement came as Australia’s Treasurer Wayne Swan said the nation was well equipped, should there be a re-run of the 2009 financial crisis, becoming one of the first leaders to comment on such a step in the latest turmoil.
Commodities continued their slide, extending the rout. Asian stocks tumbled as much as 5 percent after the worst sell-off on Wall Street since the global financial crisis.
Traders are now awaiting US nonfarm payrolls data due on Friday, expected to show an increase of 85,000.
Barclays Capital, one of the most bullish forecasters of oil prices this year, now sees slower global demand growth this year. In a report to be published in the next few days, Barclays Capital now sees global oil demand increasing by 1.1 million barrels per day (bpd) this year to 88.68 million bpd, to reflect the dramatic economic slowdown.
The investment bank previously forecast a rise in oil demand this year of 1.56 million bpd and two months ago expected the increase to be as much as 1.7 million. The sharp reduction would take it from one of the most bullish on growth to one of the most bearish, according to a Reuters poll two months ago.
US weekly jobless claims on Thursday suggested a marginal improvement in the labor market, following disappointing manufacturing and consumer spending data earlier this week.
US gasoline futures led the slump, with their premium over US crude falling to the lowest in a month after stockpile data added to evidence that expensive fuel and a weak economy have reduced demand in the world’s top user.
As crude oil broke below its weeks-long trading range, implied volatility in the options market spiked to the highest since the 5 May melt-down. The so-called Oil VIX index based on NYMEX options surged more than 26%.
In commodities, the 19-commodity Reuters-Jefferies index , a global benchmark for the asset class, fell 2.8% on Thursday, its biggest one-day decline since 11 May.
The European Central Bank resumed buying government bonds after a four-month break and announced new longer-term funding for liquidity-starved banks. But after a brief hiccup, Italian and Spanish bond yields continued their inexorable climb towards danger levels.