The price of crude oil plunged below $100 a barrel in the US trading session on Thursday, marking the third largest drop on record, and the biggest drop since the 2008 financial crisis. What weighed down the precious commodity as well as other commodities was the overall concern by the markets that economic growth both in Europe and the US is slowing down as shown by several economic indicators released recently.
Today, data showed that German industrial orders fell unexpectedly in March while U.S. weekly jobless claims hit eight-month highs. Also this morning, disappointing UK services sector came out, and then later more disappointing news that the Bank of England would not raise rates soon and kept the current rate unchanged. The Pound touched a six-month low versus a currency basket.
U.S. crude tumbled to $98.39 at time of writing (1900GMT) in heavy trading volume during the later US session. Earlier in the day, oil was at $109.35, so this was a drop of over 100 pips. This was the first time crude recorded values below $100 a barrel since March 19. During the time of the Libyan crisis erupted oil prices sky rocketed to over $110 a barrel creating record levels since 2008, with Brent topping $127 a barrel this year and U.S. crude over $114 a barrel.
In line with the fall in commodity prices today, global equities declined and the 19-commodity CRB index continued its fall nearing the biggest weekly decline since December 2008, with a more than 4.5 percent drop.
“The longer-term bull cycle is still in place, but this correction may have a life span of several months, as weaker economic data is fueling this correction to a large part,” said Sterling Smith, senior analyst for Country Hedging Inc in Minnesota.
Brent crude futures with June expiry also ticked down to $110.91 a barrel marking the fourth consecutive day of losses.
“Crude oil is selling off sharply for two primary reasons: QE2 is coming to an end in June and without a QE3 behind it, it will take liquidity out of the market, hurting risky asset classes such as commodities,” said Chris Jarvis, senior analyst, Caprock Risk Management in New Hampshire.
He later added: “With Osama bin Laden dead, the market is adjusting the geopolitical risk premium down accordingly. Given this, speculative money is being taking off the table.”