Oil crashes 10 percent in record rout
Oil collapsed into free-fall on Thursday, diving as much as 10 percent and sending U.S. crude back under $100 a barrel as investors staged a nearly unprecedented stampede for the exits.
Weak economic data from Europe and the United States fed concerns that have battered commodities all week. German industrial orders fell unexpectedly in March while U.S. weekly jobless claims hit eight-month highs, sparking a fourth day of profit taking in early trade.
But the onslaught of selling went far beyond any single cause. Brent crude plunged more than $12 at one point -- exceeding the sell-off that followed Lehman Brothers' collapse. U.S. crude broke below $100 for the first time since March as technical triggers set off a cascade of sell-stops.
Shell-shocked traders said the decline that has more than halved this year's oil price gains might not be over yet, but few were ready to call an end to the long bull run.
The longer-term bull cycle is still in place, but this correction may have a life span of several months, as weaker economic data is fueling this correction to a large part, said Sterling Smith, senior analyst for Country Hedging Inc in Minnesota.
World stocks fell and the 19-commodity Reuters-Jefferies CRB index dropped more than 4.9 percent, heading for its biggest weekly decline since December 2008.
Additional pressure came from news OPEC was considering raising formal output limits when it meets in June to convince oil markets it wants to bring prices down and reverse the impact of fuel inflation on economic growth.
Brent crude futures for June settled down $10.39 at $110.80 a barrel, the second biggest drop on record, in the fourth straight day of losses that sent prices breaking below the 50-day moving average. Later it fell as low as $109.02 a barrel in post-settlement trade.
U.S. crude settled down $9.44 at $99.80 a barrel, before hitting $98.25 a barrel in post-settlement trade, marking the second-biggest one day loss in dollar terms on record.
VOLUMES, VOLATILITY SURGES
Trade levels surged, with volumes for Brent double the 30-day moving average and the third-highest on record. U.S. crude volume was 80 percent over the 30-day average.
Oil volatility also surged 36 percent, the biggest one-day rise since the CBOE index began in 2009, as traders rushed to load up on $95 to $100 put options.
The disruption of oil exports from Libya, concerns about the supply impact of unrest in the Middle East and Africa, and the weaker dollar have sent crude to the highest level since 2008, with Brent topping $127 a barrel this year and U.S. crude over $114 a barrel.
Selling pressure on oil and other commodities came on several fronts this week, with investors weighing factors from the death of Osama bin Laden to the impact of higher fuel and commodity costs on the economies of consumer nations to monetary policy in major economies.
Crude oil is selling off sharply for two primary reasons: QE2 is coming to an end in June and without a QE3 behind it, it will take liquidity out of the market, hurting risky asset classes such as commodities, said Chris Jarvis, senior analyst, Caprock Risk Management in New Hampshire, referring to the Federal Reserve's quantitative easing.
With Osama bin Laden dead, the market is adjusting the geopolitical risk premium down accordingly. Given this, speculative money is being taking off the table.
India's central bank raised rates more than expected on Tuesday, and expectations No. 2 oil consumer China could take similar actions helped push down prices on Wednesday.
The euro headed for its biggest slide against the dollar since November after the European Central Bank hinted interest rates were unlikely to rise next month, short-circuiting a rally that had driven the currency to a 17-month high.
(Reporting by Eileen Moustakis, Gene Ramos, Robert Gibbons, Emma Farge, and Jeffrey Kerr in New York; Francis Kan in Singapore, Claire Milhench and Dmitry Zhdannikov in London and Jeffrey Kerr in New York; Editing by David Gregorio and Cynthia Osterman)
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