Oil Prices Plummet Amid Economic Concerns

Strategic Insights -

Concerns over the state of the US economy triggered a sell-off in oil prices, with crude oil futures settling at their lowest level in over a month. The decline in demand was exacerbated by the American consumer's reduced spending in June, which plunged by 0.2% after a revised 0.1% rise in May. This was the largest drop since September 2009. The lower spending came as incomes rose by 0.1%, following a 0.2% rise in May. The weak consumer data followed worrisome indications from the US manufacturing sector, with the Institute for Supply Management's manufacturing purchasing managers' index falling to 50.9 in July from 55.3 in June.

Key Takeaways:

  • Crude oil futures prices fell for a third straight day, settling at the lowest level in over a month, amid concerns over the US economy.
  • The decline in oil prices was triggered by a 0.2% drop in personal spending in June, the largest since September 2009.
  • Incomes rose by 0.1%, following a 0.2% rise in May, which exacerbated the decline in demand.
  • The Institute for Supply Management's manufacturing purchasing managers' index fell to 50.9 in July from 55.3 in June, a signal of a weakening manufacturing sector.
  • Brent premium to Nymex crude reached a near-record high of $22.65 a barrel, with traders anticipating a possible move towards breaking $90 a barrel.
  • Analysts expect oil-inventory data due out this week to show a 1.1 million-barrel rise in crude oil stocks, a 100,000-barrel rise in gasoline stocks, and a 1.7 million-barrel rise in distillates.

Statistics:

  • Crude oil futures prices settled down 1.2% or $1.10 at $93.79 a barrel, the weakest level since June 28.
  • Brent traded at a premium of $22.65 a barrel to Nymex crude, on target to challenge the record high spread of $22.63 a barrel at the July 14 settlement.
  • Crude oil prices fell to a session low of $93.17 a barrel after a report showed US gasoline sales fell 3.1% from a year earlier in the week ended July 29.
  • Gasoline futures for September delivery settled down 1.67 cents at $3.0373 a gallon, the lowest price since July 6.
  • September heating oil futures settled down 0.58 cent at $3.0916 a gallon.

Sources:

  • Dow Jones Commodities News via Comtex (Aug 02, 2011)
  • Commerce Department
  • Institute for Supply Management
  • BNP Paribas Commodity Futures
  • MasterCard Advisors LLC
  • American Petroleum Institute
  • Energy Information Administration
  • Dow Jones Newswires