Brent crude oil fell nearly $4 a barrel on Thursday as a raft of weak US economic data provided a fresh blow to shaky investor confidence, while US crude's losses extended to 14 percent so far in August. Equities plunged, volatility jumped and gold hit a fresh record as traders said fears of a new recession were growing again, sparking another round of risk aversion reminiscent of the violent sell-offs at the start of this month.
Thursday's declines follow a short-lived rebound that had seen Brent crude climb by around $9 in the previous six sessions. "It's much of the same - concerns over European banks, US deficits weighing on economic growth and the possibility of a global recession as the end result," said Chris Jarvis, senior analyst for Caprock Risk Management in Hampton Falls, New Hampshire.
Brent crude fell $3.61 to settle at $106.99 a barrel, breaking below the 200-day moving average, a key technical indicator closely watched by traders. US crude oil settled down $5.20, or nearly 6 percent, at $82.38 a barrel. Selling accelerated after the settlement, with prices dropping down to $81.15 a barrel. The losses pushed US oil below 35 on the 14-day relative strength index, approaching the 30 level, which is frequently seen as a sign of a commodity being oversold. US crude's discount to Brent widened to near $25 a barrel, but still off the record over $26 hit earlier in August.
Early pressure from disappointing US weekly jobless claims and July home sales reports sparked a steep sell-off mid-morning. Selling then intensified after a report showed factory activity in the US Mid-Atlantic region in August dropped to the lowest level since March 2009.
US trading volumes were relatively strong, up 22 percent over the 30-day average, topping 800,000 lots shortly after the settlement. Brent trade was more subdued, slightly over that average. Implied volatility in the oil market soared, with the Chicago Board Options Exchange's Oil Volatility Index hitting 54.23 percent, its highest level in more than a week and snapping a steady downtrend. "The market is in meltdown mode; the data continues to stink. I don't know that there's much more to be said. We continue to be in a soft patch," said Sal Catrini, managing director for equities at Cantor Fitzgerald & Co in New York.
Analysts have revised down forecasts for fuel consumption in recent weeks as concerns about global growth rose, with Morgan Stanley the latest bank to cut its forecast for global gross domestic product in 2011 and 2012. The oil market is also closely watching developments in North Africa and the Middle East. In Libya, where around 1.6 million barrels per day (bpd) of crude production has been cut by a six-month civil war, rebel forces took control of a refinery and blocked a main highway, further isolating Muammar Qadhafi's Tripoli stronghold.
US President Barack Obama banned US imports of Syrian oil as part of a wider sanctions effort, and joined the European Union in calling for President Bashar al-Assad to step down after a five-month crackdown on protesters. Brent prices are up by almost 13 percent so far in 2011, in part because of the Libyan outage, but are almost $20 a barrel below the post-2008 peak they hit back in April as European refiners scrambled to find alternatives to Libyan supplies.
"What was announced today will have a very limited impact as it doesn't really prevent anyone from outside the US dealing with Syrian oil," said Greg Priddy, global oil analyst at Eurasia Group in Washington. Syria produces about 400,000 bpd of oil, exporting most of about 150,000 bpd to European countries, including the Netherlands, Italy, France and Spain. About 10,000 bpd of Syrian oil products were exported to the United States in the first five months of 2011, out of total imports of near 9 million bpd.
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