Crude Declines by Nearly $2 a Barrel
Oil prices plunged nearly $2 a barrel Wednesday, the biggest decline in almost three months, as supply fears receded and investors took profits.
Light crude oil for October delivery fell $1.74, or 3.9%, to settle at $43.47 a barrel on the New York Mercantile Exchange, oil’s lowest closing level since Aug. 4. Prices have fallen for four days after failing to breach $50 on Friday.
The price of Nymex-traded oil futures has fallen by 11% since Thursday, when they settled at $48.70 -- the highest settlement since such contracts began trading in 1983. When adjusted for inflation, oil is more than $13 a barrel cheaper than it was leading up to the Gulf War.
“This is overdue; this is so overdue,” said Fadel Gheit, an oil industry analyst at Oppenheimer & Co. in New York. “Oil prices have been extremely inflated.”
Oil prices had advanced rapidly toward the $50 level in recent weeks, prompting fears of economic damage. The Air Transport Assn. complained to Congress on Wednesday of soaring jet fuel costs and pressed for hearings.
Strong demand and scant excess production capacity had put markets on edge as traders worried that there would be inadequate supplies in the event of output disruptions in Iraq, Russia, Saudi Arabia and Venezuela. Magnifying the run-up, analysts said, was a rash of buying by institutional investors speculating that prices would go higher.
But prices have reversed course, sliding on reports that Iraq is again exporting about 2 million barrels of oil a day and that gasoline demand in the United States has tapered off from peak levels.
Sellers overwhelmed the market Wednesday after a government report said the nation’s gasoline inventories were unchanged at 205.7 million barrels last week, near the upper end of their five-year average.
Analysts had expected gasoline supplies to decline because of summer road trips, but demand over the last four weeks was just 0.7% higher than it was last year, according to the Energy Information Administration, an arm of the U.S. Energy Department.
“You should have had a 2-million-barrel draw in gasoline at this time of year,” said Ed Silliere, vice president of risk management at Energy Merchant in New York, which markets wholesale gasoline and heating oil.
“The fact that people started taking profits triggered further profit taking. It fed on itself,” Silliere said.
Gasoline for September delivery fell 6.57 cents, or 5.2%, to $1.1946 a gallon in New York, the lowest since June 30. Futures were 7% higher than a year earlier.
Gasoline imports rose 11% last week to 992,000 barrels a day, the EIA said.
Iraq said it had restored full crude exports of 2 million barrels a day from its southern Basra fields and was making deliveries, at 450,000 barrels a day, half capacity, from its northern Kirkuk fields for the first time since May.
Nigeria, Africa’s largest oil producer, said the Organization of the Petroleum Exporting Countries might decide at a meeting next month to boost production.
Oil prices are being driven by speculation and concern about disruptions in Iraq, said Edmund Daukoru, Nigeria’s presidential advisor on oil and its most senior OPEC delegate.
