Oil prices fell for the first time in three days on Thursday after Federal Reserve Chairman Ben Bernanke said the central bank was not ready yet to take more monetary easing measures, dashing hopes that energy demand would get a boost from fresh economic stimulus.
Bernanke, in a second day of congressional testimony, repeated his statement that the Fed stood ready to take more action should the economy weaken further. But he also said that inflation was higher now than it was late last year, so the Fed is not ready yet to take action.
That caveat boosted the dollar, which erased losses against most major currencies. This, in turn, prompted selling of oil futures as a stronger greenback encourages investors to cut down on holdings of risky assets.
"The big headline today for the oil market is Bernanke's qualification of what some expected to be QE3," said David Kirsch at PFC Energy. Many had expected the Fed to boost the economy with a third round of government bond buying, or quantitative easing, QE3 in market shorthand. "But we're also looking at a market with very weak economic prospects, as well as concerns about the US debt limit talks and the eurozone situation," Kirsch added.
Wall Street also extended a decline after Bernanke's latest comments and a broad array of commodities fell as the dollar recovered, although gold hit another record on safe-haven buying. US crude for August delivery settled at $95.69 a barrel, falling $2.36, after rising to $98.88 early. In London, ICE Brent August crude expired at $118.32, falling 46 cents, well off a session high of $119.40. The ICE September contract closed at $116.26, down $1.59, with a $2.06 discount against August, the widest spread Brent front-month spread since June 15..
Brent's premium over US crude, also known as West Texas Intermediate, stood at $22.63, after soaring to a record $23.57, erasing the previous high of $23.34 hit on June 15, according to Reuters data. By 3:25 pm EDT (1925 GMT), US crude trading volume hit 733.364 contracts, up 6 percent from the 30-day average. In London, Brent crude volume was at 421,895 lots, down 23 percent from the 30-day average.
Crude slid on economic pessimism after Moody's Investor Service warned late Wednesday that it might strip the United States of its gold-plated credit rating in coming weeks if the $14.3 trillion limit on America's borrowing was not raised. Investors were jittery as negotiations between the White House and Congress remained heated over a deal that would allow the borrowing limit to be raised by August 2.
In London, North Sea supply issues beset Brent in recent days, but price pressure eased on Thursday after news that the 200,000-barrels-per-day Buzzard oilfield, Britain's largest, should turn to full output in August. Oil prices rebounded early Thursday after US data showed a drop in initial jobless claims last week and a surprise retail sales rise in June, shoring up hopes for oil demand.
First time filings for state unemployment insurance fell 22,000 last week to 405,000, better than expected, but above the 400,000 benchmark for a stable labour market. Retail sales rose slightly, thanks to higher auto dealers receipts. On other market factors, lingering worries about the eurozone debt crisis continued to keep investors cautious. Despite the day's losses, crude futures still retain a big portion of gains recouped after prices fell to four-month lows following the June 23 announcement from the International Energy Agency of a co-ordinate move to release 60 million barrels from members' emergency reserves. US crude was still up 5 percent while Brent crude retained gains of about 10 percent after rebounding following the IEA action.
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