CRUDE futures skidded lower yesterday, falling more than US$2 a barrel to their lowest closing price in three months on concerns that oil stocks are growing even as the US economy and demand for oil are cooling.
Global stock markets have fallen sharply in recent days on fears that the US economy is close to entering a recession, if it hasn't already. Energy investors, who often view stocks as a proxy for economic growth, fear a slowdown would curtail demand for oil and petroleum products such as gasoline and heating oil.
"The (oil) market has become quite sensitized to any move in equities," said Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill Cos.
Meanwhile, domestic oil inventories likely grew last week by 1.8 million barrels, according to the average estimate of analysts surveyed by Dow Jones Newswires. Supplies of gasoline and heating oil also likely rose. The Energy Department's Energy Information Administration will issue its weekly inventory report on Thursday this week, a delay of one day due to the Martin Luther King, Jr., holiday.
Light, sweet crude for March delivery fell US$2.22 to settle at US$86.99 a barrel on the New York Mercantile Exchange Wednesday. Oil last closed below US$87 a barrel on Oct. 23.
The Federal Reserve's decision Tuesday to slash its benchmark fed funds rates by three-quarters of a percentage point to 3.5 percent has done little to limit declines in oil prices. While the Fed is expected to cut rates further next week, many investors remain worried about whether the cuts will stave off recession.
"We shall see how stimulative our current monetary policy is," Rafield said.
Investors are also concerned that high energy prices may be contributing to the economic slowdown.
In Cairo Wednesday, US Energy Secretary Samuel Bodman said high oil prices are beginning to affect the economy.
"The economy has been able to withstand it until now," Bodman said. "I believe the US$100 price of oil is starting to have an impact."
Oil rose as high as US$100.09 a barrel earlier this month before falling back on economic concerns.
Other energy futures were mostly lower Wednesday. February heating oil futures fell 4.95 US cents to settle at US$2.4231 a gallon on the Nymex while February gasoline futures dropped 2.98 US cents to settle at US$2.2508 a gallon. November natural gas futures fell 4.9 US cents to settle at US$7.621 per 1,000 cubic feet.
In London, March Brent crude futures fell US$1.83 to settle at US$86.62 a barrel on the ICE Futures exchange.