Afternoon Price Check, May 5: Oil Futures Tumble in Commodities Selling Frenzy
Crude and heating oil futures plunged on fears the global economic recovery and oil demand are at risk from soaring oil prices. (image: ft.com)
Commodities tumbled and oil bled, with crude dropping below $100 a barrel in its biggest single-day loss in two years after a massive market correction.
Investors have driven up the cost of oil and other commodities in recent months on fears of insufficient supply. But there are now concerns high prices have eaten into world demand, sparking today’s sudden plunge.
Crude lost $9.44, or 8.6 percent, to finish Thursday trading at $99.80 – its fourth consecutive day’s loss and lowest settlement since March 16. Heating oil futures also toppled, shedding more than 8 percent on the NYMEX.
The selling frenzy was sparked by worse than expected weekly US jobless figures from the Department of Labor, which showed new unemployment claims surged to 474,000, the highest level since last August.
A series of negative economic outlook reports offered further evidence the global economic recovery was coming unhinged, sparking fears of negative growth and declining global demand for crude. US economic growth slowed in the first quarter, while inflation-adjusted wages saw the biggest drop in three years, according to a separate Labor Department report earlier Thursday. An Energy Information Administration report this week also showed a big increase in crude oil inventories, signaling slowing oil demand.
Meanwhile, the US dollar, which has been in free fall for weeks, rallied today against the Euro, sending commodity prices lower. As crude is traded internationally in US dollars, the dollar’s fall tends to make oil more attractive to foreign investors.
As gasoline nudges the psychological $4 a gallon across the US, there are also fears that major banks around the world are poised to raise interest rates in a bid to put the brakes on inflation, further stemming demand for oil.
Today’s events are likely to result in a big fall in retail heating oil prices on Friday.
