Greg Gerber posted on August 06, 2008 18:59
DALLAS -- Crude oil futures fell as low as $117.11 a barrel on speculation a slowing global economy will reduce demand, and after the dollar hit a seven-week high.
Today's 1.7 percent drop to the intraday low put prices more than 20 percent below the record $147.27 a barrel in New York on July 11; a drop of 20 percent is a threshold often seen as the start of a bear market.
Oil's decline follows a one-year doubling of prices as the dollar weakened, demand in Asia grew and Iran's nuclear program spurred concern that the country, the Middle-East's second- biggest oil producer, might face a military attack from Israel.
``We've been warning about the oil bubble bursting after reaching $150 because of investors pulling money out of the markets and the negative demand reaction,'' said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt. ``At the moment we expect a corrective move to continue.''
Futures fell after a U.S. government report showed an unexpected increase in inventories and an extended decline in fuel demand.
Crude supplies rose 1.61 million barrels to 296.9 million barrels in the week ended Aug. 1, the Energy Department said today in its weekly report. Inventories were forecast to fall 200,000 barrels, according to the median of analyst estimates in a Bloomberg News survey.
``The market focus is shifting back toward the direct oil fundamentals, such as how's demand, where's supply and where are inventories, and away from some of the wider issues like what's the Federal Reserve Board doing with interest rates,'' said Tim Evans, an energy analyst with Citi Futures Perspective in New York.
``The bubble has burst,'' said James Cordier, portfolio manager at OptionSellers.com in Tampa, Florida. ``As the dollar continues to stabilize, the excuse for buying commodities is ended. The dollar has been strengthening, and that is one big catalyst that is gone.''
The dollar had weakened for almost three years, trading at a record low $1.6038 per euro on July 15, drawing investors to energy as a new asset class. Credit restrictions affecting the housing and banking industries are now causing many of these investors to cash out.
The dollar today touched $1.5398 per euro, its strongest against the European currency since June 16.
SOURCE: Bloomberg