Oil fell more than 2 percent on Monday, briefly touching a three-week low below $81 a barrel as flying restrictions in Europe ate into jet fuel demand and fraud charges against Goldman Sachs Group Inc dampened risk appetite around the world. The drop followed a 2.7 percent fall in the previous session, which was the largest percentage loss since February 5.
Rattled by Friday's legal move against Goldman and lingering concerns about Greek debt, investors sought safety in the low-yielding but stable US dollar and yen. "The combination of the Goldman Sachs fraud charges and the impact of the Iceland volcanic eruption on Europe's economy as it relates to oil demand have pulled crude prices down," said PFGBest Research analyst Phil Flynn in Chicago.
"The outlook has dramatically changed, particularly with the Goldman issue, and may be a major sentiment-changing event for the energy market." US crude for May delivery fell $1.79 to settle at $81.45 a barrel. Earlier, US oil touched $80.53, the lowest intraday price since March 29. Crude briefly broke below the 50-day moving average and saw its biggest three-day loss since February 3-5.
Brent crude prices for June fell $1.76 to $84.23. Separately, analysts said US crude oil inventories probably rose last week on higher imports, following a surprise dip the week before. A preliminary Reuters poll of seven analysts ahead of weekly inventory reports forecast an average increase of 200,000 barrels, with three of the forecasters predicting that stocks fell. Analysts said flight disruptions caused by Iceland's volcano also added pressure to oil as the ash cloud slashed world jet fuel demand by at least 1 million barrels per day (bpd), or about a fifth of global consumption.
The eruption has hammered air travel in Europe since Thursday, with around 70 percent of all flights grounded. Heating oil, the benchmark futures contract that jet fuel trades against, was the biggest percentage loser in the oil futures complex after midday.
There was some good news for airlines losing $250 million a day when the European Union reached a deal to reduce the size of a no-fly zone, with the new regime expected to come into force at 0600 GMT on Tuesday.
Wall Street, weighed by the Goldman Sachs saga, regained some ground late in the day, helped by advances in companies that report quarterly results this week, including International Business Machines. The US Securities and Exchange Commission (SEC) has accused Goldman of duping clients over its marketing of a subprime mortgage product, and the bank could also be pursued by regulators in Germany and Britain.
Further pressuring oil, a survey on Friday showed US consumer sentiment took a surprise negative turn in early April. Oil prices have nearly tripled from lows near $30 a barrel at the end of 2008 to more than $87 earlier this month as robust economic data buoyed hopes of increasing demand.
A retreat from those levels would relieve the Organisation of the Petroleum Exporting Countries (Opec) of pressure to cool rising prices amid concerns that high energy costs could hurt a fragile economic recovery. Venezuela's oil minister said last week he saw no need to boost output unless there was a robust strengthening of demand, and Kuwait's oil minister said Opec would only consider raising output if oil went above $100 a barrel.
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