Oil falls $4 to near $117 on demand fears
Brent crude fell by more than $4 to near $117 a barrel on Thursday as fund managers and traders pulled money from across commodities markets on concerns about interest rate rises and demand destruction.
At 1318 GMT, Brent crude futures for June were down $3.95 to $117.24, after dipping to an intraday low of $116.55. U.S. crude for June was down $3.45 to $105.79 a barrel after falling more than $4 to an intraday low of $105.11.
This is the biggest weekly fall for Brent and U.S. crude since the week ended July 4, 2010.
Bearish news is hitting the market from every quarter, said John Kilduff, a partner at Again Capital in New York.
Germany started us off with a very poor factory reading, then the spike in (U.S.) weekly jobless claims and an apparently less hawkish ECB have combined to accelerate and punctuate the sell-off.
Oil had trended down all morning following bearish inventory data from the U.S. and discouraging economic indicators on Wednesday, but the real selling kicked in when Brent crashed through an important technical level at $120 a barrel.
It's a bit of an exodus, said Rob Montefusco, an oil trader at Sucden Financial.
Gregory Cain, managing partner at Ebullio, a UK-based commodity fund that trades both futures and physical base metals, said there was an element of profit-taking in the commodity rout after a strong rally.
We've had a pretty big sell-off over the last couple of days, and CTAs (commodity trading advisers) have been getting out. It's basically become self-perpetuating.
A trader with a major bank said much of the selling, which was mirrored in base and precious metals, could be attributed to fund managers pulling out of commodities as the end of the second round of quantitative easing in the U.S. loomed.
People won't sit and wait until the end of June when the official bond buying program ends, the trader said.
Cain agreed: We've been trading at these higher prices for such a long time people are starting to talk about no QE3 and what they are going to do in June when QE2 ends.
The 19-commodity Reuters-Jefferies CRB index <.CRB>, a global benchmark for the asset class, fell 2.05 percent on Thursday.
Bearish data hit the oil market in both Europe and the United States, with German industrial orders falling unexpectedly in March [ID:nLDE74414K] and U.S. weekly jobless claims rising to their highest level in eight months, cementing the weak economic picture. [ID:nN05290682]
It does feed into the weakness fears after yesterday's ISM services reports, said James O'Sullivan, chief economist at MF Global in New York.
We are beginning to see the impact of high oil prices on oil demand and on the economy, agreed Christophe Barret, an energy analyst at Credit Agricole.
DEMAND DESTRUCTION
Michael Hewson, an analyst with CMC Markets, said concerns about higher interest rates and demand destruction were taking hold across the commodities complex.
China and India are going to be taking a much more aggressive view with respect to inflation at the expense of a short-term fall back in growth, he said. That's pushing oil prices and commodity prices in general lower.
The European Central Bank held interest rates at 1.25 percent as expected, but ECB President Jean-Claude Trichet said he continued to see upward pressure on overall inflation, mainly owing to energy and commodity prices.
He added that he would monitor developments very closely but held off using the code words strong vigilance, which traders said was a signal the ECB won't hike rates in June.
The euro sold off against the dollar as a result, and by 1317 GMT the dollar was up 0.62 percent against a basket of currencies <.DXY>.
(Additional reporting by Francis Kan in Singapore, Dmitry Zhdannikov in London and Jeffrey Kerr in New York; editing by James Jukwey)
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