Oil Drops to $69 on High Stocks, German Ban
By: Reuters | 19 May 2010 | 09:18 AM ET
Oil stood $69 a barrel after falling to its lowest in more than seven months on Wednesday, pressured by high U.S. stockpiles and as concern over tighter financial regulation dampened appetite for riskier assets.
The decline in oil for a third day followed Tuesday's report from industry group the American Petroleum Institute showing crude inventories at the storage hub at Cushing, Oklahoma, rose to a record high.
Also Germany's move to ban naked short-selling of some securities, including the stocks of its 10 most important financial institutions, hit equities and the euro as investors moved out of riskier assets.
"It's all financial markets-driven," said Carsten Fritsch, commodities analyst at Commerzbank. "The news regarding short-selling was quite surprising and it led to a rapid strengthening of the U.S. dollar and falling equity markets, and this affects commodity prices."
U.S. light, sweet crude [CLC1 69.18 -0.23 (-0.33%) ] for June delivery fell as low as $67.90, its lowest intraday level since Sept. 30, 2009.
London Brent crude [LCOC1 74.07 -0.36 (-0.48%) ] was down.
Investors moved into safe havens such as the dollar and the yen on fears tighter financial regulation would derail the global economic recovery.
The euro fell to a four-year low against the dollar earlier on Wednesday before recovering.
Analysts who use past price moves to predict future direction said U.S. crude's next support level is around $66 a barrel, almost $20 short of the 19-month high of $87.15 prices reached on May 3.
Oil markets look well supplied with inventories in the United States on the rise and the Organization of the Petroleum Exporting Countries pumping 2 million barrels a day (bpd) more than its official output limit.
While oil is below the $70 to $80 level many in OPEC have said they prefer, officials from the group have so far stopped short of calling for any immediate steps to prop up the market.
"Prices are not related to supply and demand. They are related to the world economy. There is no role for OPEC at this stage," said Algeria's oil minister, Chakib Khelil.
He added prices were likely to rebound once the euro zone rescue package started to take effect.
Tuesday's API data showed crude inventories at Cushing rose 914,000 barrels last week to a fresh record high of 37.99 million barrels, although overall crude stockpiles fell unexpectedly.
The U.S. government's Energy Information Administration issues its weekly snapshot on inventories at 1430 GMT.
Crude inventories are expected to rise by 700,000 barrels.
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