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Crude Oil in Biggest Quarterly Drop in Years

By on October 4, 2011

Crude oil prices declined suddenly at the weekend on renewed global economic worries, pushing back Brent more than 10per cent for its biggest quarterly decline in five quarters.

United States (US) crude futures fared even worse, posting their weakest quarterly performance since the financial crisis of 2008 as a wobbly economy sparked more demand worries, Reuters reported.

Penultimate Thursday oil prices fell more than 6 percent as gloomy data showed a world economy at risk of slipping into recession. A closely watched survey in Europe by the Associated Press  indicated a recession could be on the horizon and a manufacturing survey suggested a slowdown in China, which has been one of the hottest economies.

When the economy slows, so does demand for oil. On April 29, oil had dropped 29 percent from a three-year high of $113.93 a barrel. The price had come down because high unemployment, weak consumer confidence and expensive gasoline slowed demand.

But on Friday, crude futures, according to Reuters report  fell with a broad array of commodities, led by copper, which with US equities tumbled to its worst quarter since 2008.  In London, International Commodities Exchange (ICE) crude for November delivery settled at $102.76 per barrel, dropping $1.19, or 1.14percent, after touching a session low of $101.78.  For the quarter, Brent crude fell $9.72, or 8.64percent, the biggest percentage loss since the second quarter of 2010.

For the month, front-month Brent dropped $12.09, or 10.53percent, the biggest monthly decline since May 2010. US November crude settled at $79.20 per barrel, falling $2.94, after dropping to an intraday low of $78.77.  For the quarter, US crude fell $16.22, or 17percent, the biggest percentage loss since the fourth quarter of 2008.

The report added that Brent’s premium against US crude rose back to $23.56, after dropping to $21.81 last Thursday. The day’s sell-off began after data showed that China’s manufacturing sector contracted for a third consecutive month in September, adding to doubts about Europe’s ability to solve its debt crisis.  That drove investors to sell riskier assets such as equities and commodities. Trading was volatile on quarter-end book-squaring, Reuters quoted  traders to have said.

Trading in Brent was more hectic than US crude, reaching 701,000 contracts as of 3:45 pm EDT (1945 GMT), which was 33percent above its 30-day average.

US crude volume hit nearly 599,000 contracts, down 5.3percent from its 30-day average.  Supply from all 12 Organisation of Petroleum Exporting Countries (OPEC)  members is forecast to average 30.25 million barrels per day this month, up from 30.15 million in August, according to a Reuters survey.

Libya’s output has begun to recover after falling to almost nothing in the civil war, the survey found. The country exported one small crude cargo on 25 September and is reported to be sending some oil to refineries.  “If the current positive reports from Libya are confirmed, then domestic production could reach 1.3 million barrels per day by the end of next year,” JP Morgan was quoted to have said in a note.

In June 2008, the price of crude oil hit an all-time high of $145 per barrel. By December, it had fallen to a low of $30 per barrel, as the global economic crisis eroded oil demand. Oil prices usually go up in the summer, driven by high demand for gasoline during vacation driving times. Sometimes it will drop further in the winter, if there is lower than expected demand for home heating oil, due to warmer weather.