MW: Crude falls 4% as traders watch dollar, rescue plan
By Myra P. Saefong & Polya Lesova, MarketWatch
SAN FRANCISCO (MarketWatch) -- Crude-oil futures fell nearly 4% Thursday, weighed down by gains in the U.S. dollar and ongoing concerns about a slowdown in global oil demand.
Traders have been closely watching the $700 billion rescue plan for the financial industry. The plan was approved by the U.S. Senate last night and the House of Representatives may now consider it on Friday. Read more.
"Widespread sentiment that a serious global slowdown is underway should continue to work negatively on commodity prices," said John Kilduff, an analyst at MF Global, in a note to clients.
Crude oil for November delivery dropped $3.68, or 3.7%, to $94.85 a barrel in electronic trading on Globex. It traded as low as $94.77, the lowest intraday level since Sept. 17.
Passage of the rescue plan by Congress "could potentially boost equities and support commodity markets in the short term," said Andrey Kryuchenkov, an analyst at Sucden Research, in a note.
However, "fears of slowing growth and low credit liquidity are at the forefront of investors' agenda," he said. "Growth fears are likely to cap gains in oil prices in the near future and persist until we start seeing a pick up in winter demand, with some improving economic data from the developed world."
Meanwhile, Merrill Lynch cut its 2009 oil price forecast to $90 a barrel from $107 a barrel and warned that a "synchronous global recession" could bring oil prices to $50 a barrel. It said U.S. oil demand is far outpacing its decline expectations, European demand is falling rapidly, and some of the emerging markets aren't keeping up either.
Plus, a string of fields in Saudi Arabia, Qatar and others will bring about 3 million barrels of oil a day in incremental capacity over the next 12 months.
In the currency markets, the U.S. dollar rose against most other major currencies, with the dollar index gaining 1% to 80.75.
The euro fell against the dollar after the European Central Bank left its key interest rate unchanged at 4.25% on Thursday. See Currencies.
Dollar strength typically weighs on dollar-denominated commodities such as oil and gold.
"Alarm bells are going off around the world but apparently, not loudly enough to move the ECB off its inflation vigilance, as the ECB left rates unchanged," said Kilduff. "All we can say, once again, is 'thanks for the help'."
Prices for crude fell 2% Wednesday after the U.S. Energy Information Administration reported that crude supplies rose for the first time in six weeks, by 4.3 million barrels to 294.5 million barrels for the week ended Sept. 26.
On the Globex Thursday, November reformulated gasoline fell 9.2 cents to $2.268 a gallon and November heating oil dropped 9.8 cents to $2.7486 a gallon.
The average U.S. price for regular gasoline fell to $3.598 Thursday, from $3.619 Wednesday, according to AAA's Daily Fuel Gauge Report.
Natural gas falls back
Prices for natural gas edged lower after the EIA reported a bigger-than-expected climb in last week's supplies in storage.
November natural gas futures fell 23.9 cents, or 3.1% to $7.489 per million British thermal units. The contract gained 3.9% on Wednesday.
Natural-gas inventories rose by 87 billion cubic feet for the week ended Sept. 26, the U.S. Energy Department said Thursday.
Analysts at Strategic Energy & Economic Research expected to see an increase of 81 billion, while Global Insight was looking for a climb of 62 billion.
"The injection is surprisingly robust considering nearly 4 BCF per day was still shut down last week from [Hurricane] Ike," said Ben Smith, president of First Enercast Financial.
"Moderate demand-killing temperatures have significantly reduced natural gas use," he said in an email. "In addition, shut in industrial and refining demand from Ike is still apparent."
Total stocks now stand at 3.110 trillion cubic feet, down 137 billion cubic feet from the year-ago level but 50 billion cubic feet above the five-year average, the government data said.
Average natural gas production this winter is expected to rise by 8% compared with last winter to its highest level in 35 years, the Natural Gas Supply Association (NGSA) said Thursday.
"That translates to a downward pressure point on natural-gas prices this winter," said Patrick Kuntz, chairman of NGSA, at a press briefing in Washington. Read more.
Tracking the commodities market as a whole, the Reuters/Jefferies CRB Index , a benchmark gauging the prices of major commodities, fell by 2.6%.
In the metals pits, gold futures suffered a steep drop Thursday, losing more than 5%.