Singapore: Oil fell more than $1 to $91 a barrel on Thursday, roiled by worries of heavier financial losses that would drain the US economy and hurt demand at a time when inventories of crude and gasoline are rising quickly.
US light crude for March delivery dropped $1.31 or 1.4% to $91.02 a barrel by 0209 GMT, reversing a gain of 69 cents on Wednesday’s close.
“People are looking at the US crude oil stocks, which rose heavier-than-expected and they are also worried about the equity markets,” said Tetsu Emori, a fund manager at Astmax Co Ltd in Tokyo.
US stocks fell on Wednesday, reversing strong gains after the Federal Reserve slashed interest rates, after speculation on financial television network CNBC that credit rating firms would downgrade one or both of the two US biggest bond
A credit downgrade could further harm the bank sector and stunt the global economy as financial institutions take a hit from subsequent writedowns of their assets.
The US Fed cut rates by a hefty half-percentage point to 3%, the lowest since June 2005, and comes just eight days after the central bank slashed rates by three-quarters of a point. The aggressive efforts were to halt a sharp slowdown in an economy hit by a housing slump and a credit crunch.
A US government report on Wednesday that showed a rise in US crude stocks, also brought prices down.
The Energy Information Administration said US crude stocks rose 3.6 million barrels last week to 293 million barrels, rising for the third consecutive week, as opposed to a forecast poll of 2.4-million-barrel build.
Gasoline stocks also rose 3.6 million barrels to 224 million barrels, their highest level since February 2007, while distillate stocks fell 1.5 million barrels to 127 million barrels.
The forecast was for a lower build in gasoline at 1.9 million barrels and distillates to fall 1.7 milllion barrels.
The fact that the fall in distillate stocks was less than expected signalled declining oil consumption in the US at a time of peak seasonal demand for heating.
But oil prices are expected to stay above $85 a barrel, on a monthly basis, through June, even if Organization of Petroleum Exporting Countries (Opec) keeps output close to current levels when it meets this week, the EIA said on Wednesday.
Some ministers of the Opec, speaking ahead of the group’s meeting on Friday, have said worries about a weaker US economy and lower petroleum demand means additional oil supplies are not needed.