By David Bird
U.S. crude oil futures prices fell 2% to a four-month low of $93.01 a barrel Friday on concern that the Greek debt crisis and sluggish U.S. economic growth will slow oil demand.
“It’s a worry trade,” said Zachary Oxman, managing director at TrendMax Futures, of the dramatic selloff on the heels of Wednesday’s 4.6% decline. “Nobody wants to hold long positions heading into the weekend. Who knows what could happen?”
Euro-zone finance ministers are scheduled to meet in Luxembourg this weekend to discuss a rescue package for Greece. The dollar and euro swung broadly Friday, twirling crude within a $2.25-a-barrel trading range in a flurry of headlines, including news that German Chancellor Angela Merkel and French President Nicolas Sarkozy said they would seek European Central Bank consent for a new bailout package that includes the “fully voluntary” participation of private investors holding Greek debt.
Gene McGillian, a broker and trader at Tradition Energy, said the market fear seems to be that a default by Greece would plunge the global economy back into recession.
Light, sweet crude oil for July delivery on the New York Mercantile Exchange settled $1.94 lower at $93.01 a barrel, the lowest settle since Feb. 18. Intraday, it traded to a low of $91.84 a barrel. ICE August Brent crude settled down 81 cents at $113.21 a barrel. The spread between the contracts stood at $20.20 a barrel after a record high $22.29 a barrel on Wednesday.
Nymex crude prices shed $6.28 a barrel in the week on a settlement basis, after swinging in a high-low range of more than $10 a barrel since last Friday. Brent fell $5.14 a barrel, or 4.3% in the week, but remains firm compared with Nymex crude amid reduced supplies of similar-quality oil from Libya and Nigeria.
McGillian said the steep selloff this week may spur some short-covering next week, but “we have to see how things play out in Europe.”
“We’ve wiped out half of the spring rally” in U.S. oil prices, he said, “and may be ready for a round trip back to $85 a barrel.” Prices stood at that level in mid-February, before regional unrest that ousted Egypt’s president ignited the Libyan civil war, spurring prices higher amid the loss of one million barrels a day of high-quality crude oil.
The International Monetary Fund also jarred traders’ nerves, warning that the European debt crisis and unexpectedly weak growth in the U.S. economy pose a greater threat than previously thought to the global economic recovery. It trimmed its global growth forecast slightly to 4.3%, while revising U.S. growth downward by 0.3% to 2.5%.
The downward revision puts U.S. growth at levels below those projected by the federal Energy Information Administration and calls into question the potential for even the slim rise in oil demand the EIA expects. Earlier this month, the EIA said growth of 2.7% this year will fuel a 0.8% rise in U.S. oil use to 19.3 million barrels a day.
The IMF sees U.S. economic growth in 2012 at 2.7%, while the EIA projects a rise of 2.8% will lift oil use to 19.43 million barrels a day.
“There is a lot of worry about demand destruction,” Oxman said. “Demand does not support prices at these levels. I definitely think we’ll see crude below $90 a barrel next week,” he said.
July-delivery reformulated gasoline futures slid 0.34 cent to $2.9460 a gallon, after recording both the highest and lowest settlement prices in a month earlier this week. Heating oil futures for July settled down 2.05 cents at $2.9833 a gallon, the lowest price since May 26.
