Oil Falls Below $80 on Recession Fears

By Margot Habiby - Sep 24, 2011 2:48 AM GMT+0700
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Crude for November delivery fell 66 cents to $79.85 a barrel on the New York Mercantile Exchange, the first settlement below $80 since Aug. 9. Photographer: Rich Press/Bloomberg

Oil sank below $80 a barrel and capped the biggest weekly drop since May as a pledge by Group of 20 nations to tackle rising risks failed to ease concern that the global economy is on the brink of another recession.

Futures fell 0.8 percent in New York as losses in silver, lead, gold and zinc took the Standard & Poor’s GSCI Index of 24 commodities to its lowest level since December. Prices trimmed an intraday decline as equities and the euro rebounded on speculation global central banks will take coordinated measures to prevent a financial crisis.

“The last couple of days have been pretty wild and it looks like a lot of fears about the economy continue to weigh on the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Crude for November delivery fell 66 cents to $79.85 a barrel on the New York Mercantile Exchange, the first settlement below $80 since Aug. 9. Futures decreased 9.2 percent this week, the first decline in five weeks and the biggest drop since the five days ended May 6. Prices have fallen 13 percent this year.

Implied volatility for at-the-money options expiring in November, a measure of expected price swings in futures and a gauge of options prices, surged to the highest level in six weeks yesterday for the contract nearest to expiration. Volatility slipped to 47.2 percent at 2 p.m. in New York from 48.5 percent yesterday, according to Bloomberg data.

Brent for November delivery fell $1.52, or 1.4 percent, to $103.97 a barrel on the London-based ICE Futures Europe exchange.

G-20 Pledge

G-20 finance chiefs pledged to address risks to the global economy and pushed Europe to contain its sovereign debt crisis. Policy makers are “committed to a strong and coordinated international response to address the renewed challenges facing the global economy,” group finance ministers and central bank governors said in a statement late yesterday in Washington.

“You’re having a tug-of-war in this $80-type range,” said Kyle Cooper, director of research for IAF Advisors in Houston. “There’s uncertainty regarding the equity markets, regarding demand, regarding the entire financial system.”

Central bankers and finance ministers were to discuss the economic outlook today at the annual meetings of the International Monetary Fund and World Bank in Washington.

The European Central Bank may act to address risks to growth as soon as next month should economic data disappoint, Governing Council member Luc Coene said.

Potential measures include the reintroduction of longer- term bank loans with maturities of 12 months or even longer, Coene, who heads Belgium’s central bank, said in an interview in Washington late yesterday.

Equities Rise

The Standard & Poor’s 500 Index rose 0.4 percent to 1,133.56 after earlier declining as much as 0.7 percent. The Dow Jones Industrial Average gained 1.81 points to 10,735.64. The benchmark Stoxx Europe 600 Index increased 0.6 percent to 216.19, recovering from a drop of as much as 2.6 percent.

The euro rose to $1.3487 at 2:43 p.m. in New York from $1.3465 yesterday, curbing the intraday decline in oil futures. A stronger euro and weaker dollar boosts the appeal of commodities as an alternative investment.

The S&P GSCI Index of 24 commodities fell as much as 2.2 percent to 594.12, the lowest level since Dec. 2. The index was down 1.2 percent at 2:34 p.m.

“A lot of this stuff is self-correcting,” said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. “Commodities have now come down quite a bit. Energy and metal prices are lower and that will put more money in consumers’ pockets. Eventually you will see this reflected in the economic data.”

Prices May Fall

Oil prices may fall next week, according to a Bloomberg News survey of analysts. Twenty-two of 40 respondents, or 55 percent, forecast oil will decline through Sept. 30, while nine, or 23 percent, predicted prices will increase. Nine estimated there will be little change. Last week, 45 percent of the surveyed analysts projected a drop.

U.S. fuel demand rose last month as the consumption of distillates, including diesel used by drivers, jumped to a record for August, according to the American Petroleum Institute. Total deliveries of petroleum products, a measure of demand, increased 0.3 percent to 19.7 million barrels a day last month from a year earlier, the industry-funded group said in a report today from Washington.

Oil volume in electronic trading on the Nymex was 713,513 contracts as of 2:35 p.m. in New York. Volume totaled 786,485 contracts yesterday, 19 percent above the average of the past three months. Open interest was 1.38 million contracts, up from the nine-month low of 1.36 million the day before.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net