Singapore: Oil dropped more than $1 to below $109 today, deepening this week’s sharp fall as traders looked past Hurricane Gustav to focus on a wobbly global economy and the gloomy outlook for energy demand.
Oil has tumbled more than $6 since Friday, touching its lowest in five months after early signs that a weakened Gustav caused little damage to US oil installations.
US crude fell 87 cents to $108.84 a barrel, after settling on Tuesday at $110.15, below its 200-day moving average for the first time since May 2007. It had hit a low of $108.51 earlier today.
Technical traders say the break of that key support level could contribute to a deeper decline, extending oil’s nearly $40 a barrel slump since its 11 July record high of $147.27.
London Brent crude slid 74 cents to $107.60, after falling to as low as $107.25.
Although it may be days before energy companies are able to fully assess and restore the one-third of US refining capacity and one-quarter of oil output that was shut as a precaution, many oil traders had already turned their attention elsewhere.
“It’s the economy, economy, economy. Everyone’s worried about demand destruction,” said Robert Nunan, a risk management executive at Tokyo-based Mitsubishi Corp. “The market is bearish short- to medium-term, although it has been supported by other factors such as the hurricane and the situation in Russia and Georgia,” he said.
Signs of slowing oil consumption in major developed economies have undermined the fundamental argument that booming Asian giants such as China and India are straining oil supplies, while a rebound in the dollar over recent months has prompted many funds to unwind their short-dollar/long-commodities trades.
The dollar rose to an 11-month high against a basket of major currencies on Wednesday, on a souring global economic outlook.
STORM FEARS EASE
The risk that Gustav could be a repeat of 2005’s Hurricanes Katrina or Rita, which wrecked over 100 offshore oil platforms and shut several major refineries for months for repairs, helped stem oil’s decline last week, but support has since evaporated.
With early inspections turning up little to no damage to the facilities, the International Energy Agency, which had been prepared to release emergency oil stocks in the event Gustav caused severe damage, said it saw no need for emergency supplies.
The US Government said on Tuesday it would grant Citgo Petroleum Corp’s request for 250,000 barrels of crude oil from the Strategic Petroleum Reserve. It is the only company so far to ask for emergency supplies.
Some traders are casting a nervous eye on Tropical Storm Hanna, which may possibly strike the US East Coast, while Hurricane Ike continued westward across the Atlantic and was projected to be in the vicinity of the Bahamas by Sunday.
Attention will turn on Thursday to US oil inventory data expected to show a 100,000-barrel increase in crude oil stocks, a 1.3 million-barrel drawdown in gasoline supplies and a 500,000-barrel build in distillates in the week to 29 Aug.
But the data, released a day later than usual due to Monday’s public holiday, will not capture most of the supply disruptions caused by Gustav, analysts said.