Oil tumbled a sixth day, capping the longest stretch of declines since February, as concerns mounted that the world economy is losing strength.
Futures dropped 9.8 percent in New York over the last six sessions. Central banks signaled their worries about global growth, curbing investor demand for energy and industrial metals. Federal Reserve Chair Janet Yellen said next week’s U.K. vote on European Union membership was a factor in deciding to hold interest rates steady. Oil prices also slipped as easing global supply disruptions were seen offsetting a decline in U.S. crude supplies.
"We’re in the middle of a wave of risk aversion," said Michael Wittner, the New York-based head of oil-market research at Societe Generale SA. "Existing concerns about the economy have been magnified. The Fed’s very cautious stance yesterday underscores the vulnerability of the economy, and the Brexit vote next week is a major worry."
Oil’s 80 percent rally from a 12-year low in February is faltering on speculation that higher prices will encourage more output just as global supply disruptions ease. While output losses reached a five-year high amid outages in Nigeria, Canada, Libya and Iraq, Goldman Sachs Group Inc. says that the prospect of returning supply means the price recovery remains “fragile.”
West Texas Intermediate oil for July delivery declined $1.80, or 3.8 percent, to close at $46.21 a barrel on the New York Mercantile Exchange. It’s the lowest settlement since May 13 and the biggest one-day drop since April 1. Total volume traded was 12 percent above the 100-day average.
Brent for August settlement declined $1.78, or 3.6 percent, to $47.19 a barrel on the London-based ICE Futures Europe exchange. The global benchmark closed at the lowest level since May 10. The North Sea crude ended the session at a 45-cent premium to WTI for August delivery.
More than $2.3 trillion has been wiped from global equities in the past week, as speculation the U.K. will leave the EU intensified amid anxiety over central bank policies. The Bank of Japan’s decision to leave its record monetary stimulus unchanged came less than 12 hours after the Fed reined in its projection for rate increases this year.
Nigerian crude output dropped to the lowest in 27 years as militants increased attacks on pipelines in the Niger River delta. Libyan output remains just a fraction of the 1.6 million barrels a day pumped before the toppling of Moammar Qaddafi in 2011. The country pumped 270,000 barrels a day in May. Still, oil output in Canada is expected to ramp up this month after wildfires fade, with normal production forecast by mid-July.
"The bull market ran out of steam," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "New disruptions in Nigeria and Libya will be needed to send us higher."
U.S. crude inventories dropped for a fourth week to 531.5 million barrels yet remain about 33 percent above the five-year seasonal average, U.S. Energy Information Administration data show. Supplies climbed to an 87-year high of 543.4 million barrels in the last week of April.
Crude production in the U.S. decreased by 29,000 barrels a day to 8.72 million last week, the lowest since September 2014, EIA data show.
"The market is moving on a lot of things," said Sarah Hunt, associate portfolio manager at Purchase, New York-based Alpine Funds, which oversees $4 billion. "The disruptions in Nigeria, Libya and Canada helped move prices higher. How fast U.S. onshore production falls will determine where prices go from here." [Editor’s note:]
Conventional wisdom says that lower crude prices help to grow the U.S. economy because consumers pay less at the pump for gas, and those people are likely to spend that extra money on other goods and services.
In terms of the transportation industry, the crude crash has been good for some sectors, but detrimental to others. Railway companies, for example, have seen volumes of crude oil and other petroleum products drop alongside prices, which, along with a precipitous collapse in coal shipments, has put a significant dent in earnings. For the ocean, air and trucking freight industries, on the other hand, lower fuel prices mean lower operating costs for carriers, which should translate to lower rates for shippers, though this has not always proven to be the case.By Bloomberg via American Shipper