Oil prices plunged to US$115 a barrel on Friday, driven lower by a huge jump in the US dollar, signs of moderating demand around the world and the burgeoning belief that commodities may have peaked.
Shrugging off concerns about a sabotaged oil pipeline in Turkey, investors pulled their money out of commodities and put it back into stocks — giving crude oil a weekly loss of nearly US$10 a barrel, and driving the Dow Jones industrial average up more than 300 points.
Light, sweet crude for September delivery slumped US$4.82 to settle at US$115.20 a barrel on the New York Mercantile Exchange — its lowest settlement since May 1, when it settled at US$112.52. During Friday’s trading, crude dipped as low as US$114.90. Prices for gasoline, heating oil and natural gas also dropped.
In London, Brent crude for September delivery fell US$4.53 to finish at US$113.33 a barrel.
Many analysts have pointed to the US$117-a-barrel mark for crude oil as technically significant — a move below this level suggests, they say, that oil’s recent slide is more than a brief pullback.
Crude is now down US$32 from its high of US$147.27 on July 11.
“You have to remember that this market has baffled anyone who’s used fundamentals or charts. But if you’re a chartist, today is the death knell for the possibility of new highs in the marketplace,” said Tom Kloza, publisher and chief oil analyst of the Oil Price Information Service in Wall, New Jersey.
Lehman Brothers chief energy economist Edward Morse issued a research note on Friday saying that, barring a physical disruption to supplies, “we think oil prices have peaked.”
As the US dollar launched a massive rebound against the euro and yen after the European Central Bank (ECB) and the Bank of England both left their benchmark interest rates unchanged, energy traders found reason to sell — especially since the ECB indicated that there probably wouldn’t be any more rate hikes to come.
The weak dollar had been boosting oil prices earlier this year, because dollar-denominated commodities are often used as hedges against inflation and a falling US currency.
Furthermore, the central banks’ actions bolstered the growing belief in the energy markets that economies around the world are slowing alongside the US, dampening global demand for crude oil products.
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