Oil tumbled more than 2 percent on Thursday in a sell-off sparked by the dollar's recovery from an earlier dip, as doubts re-emerged about the extent of potential US monetary easing. Trading has been volatile all week. The latest derailment came after US crude oil posted its biggest daily percentage gain in more than a month on Wednesday, following a 4 percent dive on Tuesday, when China raised its interest rates.
Economic data showed China flush with oil, exceeding the needs of its refineries and that weighed on crude prices. US December crude contract, the new front-month, settled at $80.56, down $1.98. Crude fell as low as $80.09, with traders watching to see if it can hold above $80.
Volume was light at 550,000 lots, almost 30 percent lower than the 30-day average, according to preliminary Reuters data. "Some stops were triggered on the way down and there may be a perception change and people thinking the dollar may be oversold and that the Fed may not be able to deliver as much quantitative easing and it may be priced in," said Richard Ilczyszyn, senior market strategist at Lind-Waldock in Chicago.
Sell stops were triggered at $81.30 and later accelerated as $80.80. A trend-following momentum indicator, the Moving Average Convergence Divergence (MACD) deepened its sell signal after starting to turn that way on Tuesday, market sources said.
In London, ICE December Brent ended at $81.83, down $1.77. "The oil market appears exhausted after two very volatile trading days and there is uncertainty about the price direction." said Gene McGillian, analyst, Tradition Energy, Stamford, Connecticut. Data showed that a record influx of crude oil into China last month far surpassed the needs of the country's refining sector, leaving an apparent surplus of 1.5 million barrels per day, according to a Reuters analysis of Chinese data.
September data also showed record imports and production, coupled with a release of commercial stockpiles, all of which left the Chinese market awash with oil. Earlier in the day, pressure also came from a report that China's economic growth slowed in the July-September quarter, growing at 9.6 percent year-on-year, down from 10.3 percent in the second quarter.
US crude oil inventories rose last week by 667,000 barrels, a US government report showed on Wednesday. Even though the gain was smaller than expected, the dollar's strength pulled crude prices higher. Distillate stocks fell and gasoline posted a surprise build, doing little to alter fundamental weakness.
Oil prices have found support at around $80 in recent sessions on expectations that the US Federal Reserve would launch another round of monetary easing, probably as early as next month, to help speed up the pace of economic recovery. In other news, France's 12 oil refineries remained blocked on Thursday with fuel supplies from them still cut off, as workers continued strikes to protest against the reform of France's pension system, the CGT union said.
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