NEW YORK: Brent crude oil futures dropped over $3 on Thursday to a one-week low under $103 a barrel, as investors sold commodities and equities on worries about a slowing Chinese economy and the US Federal Reserve's plan to roll back its stimulus program.
China turned the screw on credit even as factory activity in the world's No. 2 oil consumer hit a nine-month low.
US stocks fell 1 percent for a second day after Fed Chairman Ben Bernanke outlined the start of a wind-down of monetary stimulus that has helped feed the market's rally.
Brent crude fell $3.54 to $102.61 a barrel by 1:17 a.m. EDT (1717 GMT), set for its steepest daily drop since April 3. Brent's session low of $102.56 was the lowest intra-day price since June 12.
US crude oil for July declined $2.88 to $95.36, set for its largest daily decline since November 2012.
The July US contract expires Thursday. The more heavily-traded August contract also posted heavy losses, down $3.12 to $95.36.
"Because the oil market is physically oversupplied, you simply do not have the physical tightness to limit the downside during periods when investors are running away," said Tim Evans, energy specialist at Citi Future Perspectives.
"The oil market had some support from a falling US dollar and a buoyant equity market that had made it seem as though economic growth would sustain if not increase demand for petroleum, but that scenario ended at about 2:45 yesterday afternoon," he said, referring to the time of Bernanke's speech.
Oil was already under pressure on Wednesday, when Bernanke said the US economy was expanding strongly enough for the central bank to begin slowing the pace of its bond-buying stimulus later this year.
Prices also took a hit from a surprise increase in US crude inventories during the summer driving season when demand for gasoline generally rises. Crude stocks rose by over 300,000 barrels, surprising analysts who had expected a 500,000 barrel drop.
On the technical charts, Brent broke through the 14-, 20- and 50-day moving averages. US crude oil futures went through the 14- and 20-day moving averages.
Analysts said concerns about a disruption in supplies from the Middle East, home to about a third of the world's output, could limit the downside of oil prices.
Investors have worried that fighting in Syria could spread through the region. The United States has said it plans to send US weapons to Syrian rebels following proof the Syrian government had used chemical weapons against opposition forces.
"Brent has more supportive fundamentals, which helps to support prices," said Addison Armstrong, senior director of market research at Tradition Energy in Stamford, Connecticut.
"It's kind of hard to sell Brent, and given that, US crude has a hard time dropping down to what I think should be a lower price."
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