Friday, May 7, 2010

Crude Oil May Slide to $60 After Biggest Decline in 15 Months

May 7 (Bloomberg) -- Crude oil may fall to $60 a barrel in New York after the biggest three-day plunge in almost 15 months, while investors fleeing riskier assets pushed gold up toward a record.

Crude sank and gold surged yesterday as the Dow Jones Industrial Average had its biggest intraday loss since the market crash of 1987. The euro slid to a 14-month low and yields on Greek, Spanish and Italian bonds rallied on concern that European leaders aren’t doing enough to stem the region’s debt crisis. Gold futures reached $1,211.90 an ounce at 3:29 p.m. in New York, about $16 below the record on Dec. 3.

An 11 percent drop has brought the front-month crude contract on the New York Mercantile Exchange down to its 200-day moving average at $76.37 a barrel. If prices fall below support at $75, “it could spark a $15 decline,” according to technical analysis by Jim Stellakis, an independent analyst.

“The oil market is being hit by a double whammy,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “The rise in the dollar is pummeling crude. Also, there are global growth concerns which have increased because of the credit downgrades in Europe and the Greek debt crisis.”

Crude oil for June delivery dropped $2.86, or 3.6 percent, to settle at $77.11 a barrel yesterday on the Nymex. Oil touched $74.58, the lowest level since Feb. 16, at 2:45 p.m. as stocks plunged.

Euro Sinks

The euro dropped 1.5 percent to $1.262. The common currency touched $1.2529, sliding below $1.26 for the first time since March 2009.

“The ECB can fix this instantly by doing what the Fed has done -- instantly providing liquidity by buying bad fixed-income instruments and paying cash in U.S. dollars,” said David Kovacs, head of quantitative strategies at Turner Investment Partners in Berwyn, Pennsylvania, which manages $18 billion. “The reason the market is horrified now is Trichet said it’s not even being discussed. Smart investors are basically selling risk assets.”

A 110 billion-euro ($140 billion) aid package to avoid a default by Greece has failed to prevent bond yields from rising, driving up borrowing costs for countries including Spain and Portugal.


“This is a classic capitulation day,” said Kevin Davitt, a senior market strategist at LaSalle Futures Group in Chicago. “There is a pervasive fear and movement into gold as a safe haven.”

The Dow Jones Industrial Average plunged almost 1,000 points before trimming its drop and ended down 347.80 points, or 3.2 percent, at 10,520.32. About $700 billion of U.S. stock- market value was wiped out in less than 10 minutes, according to data compiled by Bloomberg.

The Standard & Poor’s 500 Index fell as much as 8.6 percent before closing down 3.2 percent at 1,128.15. It was the biggest percentage drop on a closing basis since April 20, 2009, for both measures.

“It’s panic selling,” said Burt White, chief investment officer at LPL Financial in Boston, which oversees $379 billion. “There’s concern that the European situation might cool down global growth and freeze the credit markets.”

New York Stock Exchange spokesman Rich Adamonis said “there were a number of erroneous trades” during the plunge. Nasdaq OMX Group Inc. said it will cancel stock trades on all exchanges that were more than 60 percent above or below prices at 2:40 p.m. New York time.

SEC, CFTC Review

The Securities and Exchange Commission and the Commodities Futures Trading Commission said in a statement they are “working closely with the other financial regulators, as well as the exchanges, to review the unusual trading activity that took place briefly this afternoon.”

Standard & Poor’s last month downgraded Greece’s debt to junk and followed with cuts to Portugal and Spain. Europe’s fiscal crisis could threaten banks in Portugal, Spain, Italy, Ireland and the U.K., Moody’s Investors Service said in a report published today.

“There’s a bearish contagion that’s spreading from Greece to other countries,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “We’re getting a broad-based drop in many markets. The European debt crisis is puncturing expectations of near-term tightening of the oil market.”

Commodities Drop

The Reuters/Jefferies CRB Index of 19 commodities declined 1.9 percent to 262.76, the lowest level since Feb. 8.

“There are two reasons for the drop in oil prices,” Adam Sieminski, Deutsche Bank AG’s chief energy economist, said by phone from Washington. “The likelihood of an unswerving rise in the global economy has been shaken by events in Greece. The Saudis have told us time and time again that a price near $80 was appropriate while the economy is in a recovery phase.”

Saudi Arabian Oil Minister Ali al-Naimi said last month that prices in the $70-to-$80 range are “as close to perfect as possible” and that he hoped oil would remain in that range. King Abdullah has targeted $75 oil as a fair price for consumers and producers.

U.S. stockpiles of crude oil rose 2.76 million barrels last week to the highest level since June, an Energy Department report showed. It was the 13th gain in 14 weeks. Crude oil Inventories at Cushing, Oklahoma, where the New York-traded West Texas Intermediate grade is stored, rose 4.9 percent to 36.2 million barrels, the highest level since the department began reporting on supplies at the hub in April 2004.


  1. Guava said...

    Today Crude oil prices gain New York, its biggest jump, on speculation an emergency fund by European policy makers will contain sovereign debt risks and maintain economic growth in the region.