Crude-oil futures tumbled nearly 5% Monday, extending their steep losses from last week, as traders locked in gains amid worries that a slowdown in the U.S. economy will lower demand for oil.
Crude for September delivery ended down $3.42, or nearly 5%, at $72.06 a barrel on the New York Mercantile Exchange. That was the contract's lowest closing level since July 3. Reformulated gasoline and heating oil futures also declined sharply.
"I think the sell-off was long overdue, and is simply a result of the excessive speculative length that had built up in the market through end-July," said Tom Kloza, chief oil analyst at the Oil Price Information Service, in emailed comments.
"The sell-off in oil started Friday as traders started to assess the potential impact from a weaker-than-expected jobs number," said Phil Flynn, analyst at Alaron Trading, in a research note. "The bottom line is that the market fears that a slowdown in the economy could slow the demand for oil."
Blogalaxia|petroleo,oil "Also, there is no tropical development in sight, and this market had "priced in" at least the threat of August storms and precautionary refinery shutdowns," Kloza said. "Finally, to complete the trifecta, there is a loss of confidence in the marketplace -- whether it be financial or commodities."
On Friday, crude futures finished with a loss of 1.8%, or $1.38, for the session, at $75.48 a barrel. The contract had climbed to an intraday high of $78.70 on Wednesday, the highest level a benchmark contract on the Nymex has ever seen. The benchmark contract marked a record closing high of $78.21 on Tuesday. Crude chalked up a 2% pullback last week.
"The sell-off in oil started Friday as traders started to assess the potential impact from a weaker-than-expected jobs number," said Phil Flynn, analyst at Alaron Trading, in a research note. "The bottom line is that the market fears that a slowdown in the economy could slow the demand for oil."
Sean Brodrick, a contributing editor at MoneyandMarkets.com, said that crude oil sold off for four reasons: profit-taking after the recent run-up in prices; the liquidation of profitable positions in a general market sell-off; fear that the credit crunch will slow the economy and potentially lower demand for oil; and finally the lack of storm activity in the South Atlantic is dissipating hurricane fears.
"Number one and number two are the most serious," Brodrick said in emailed comments. "Number three and number four can change in a heartbeat. I've exited most oil positions and will wait this out."
Other energy prices also fell sharply on NYMEX Monday. September reformulated gasoline fell 10.31 cents, or nearly 5%, to finish at $1.9259 a gallon, its lowest closing level since March 23.
September heating oil closed down 9.47 cents, or more than 4%, at $1.9393 a gallon.
"The global demand outlook is being given additional scrutiny this morning as the market remained under pressure following the disappointing jobs number and the concomitant stock market sell-off Friday," said Michael Fitzpatrick, analyst at MF Global, in a research report.
"Posting a new high for the current move last week, without accompanying follow through, set up technical conditions for a correction, as well," he said. "Fears of energy demand destruction were also fanned by Friday's sell-off in the stock market tied to concerns over tightening credit market conditions."
The Labor Department reported on Friday that U.S. nonfarm payrolls grew by a lower-than-expected 92,000 in July. "While we can't rule out a $2 to $3 break in September crude oil over the short run, we think the price weakness will end up being only a technical adjustment and not a major reversal, given the bullish supply situation for crude," Fitzpatrick said.
Bucking the trend in energy futures, September natural gas rose 11.80 cents, or about 2%, at $6.208 per million British thermal units.
Via: MarketWatch
