Oil Treads Around $90

WSJ

NEW YORK—Crude-oil futures slumped to a fresh 2012 low, briefly falling beneath $90 a barrel Wednesday, as the latest U.S. weekly oil data showed stockpiles remaining at 22-year highs amid sluggish demand.

The skidding euro—which fell to its weakest level against the dollar since July 2010—also ignited selling in oil futures. Worries that Greece, in an effort to patch up its troubled economy, may exit the euro zone, lifted the dollar against the European common currency, giving traders further excuse to avoid dollar-denominated oil futures.

In recent trading, light, sweet crude oil for July delivery on the New York Mercantile Exchange was down $1.35 at $90.50 a barrel after slumping to $89.84, the lowest intraday price since Nov. 1. Prices haven't settled below $90 since October 2011, and hit their recent highs near $110 a barrel last February.

A break of $90 may have prices set for a run to $85 a barrel, several traders said.

Tony Rosado, a broker at GA Global Markets, noted that Saudi Arabia has boosted its oil output to cover potential lost supplies from Iran and wants to see the price of international crudes, like European benchmark Brent, down to around $100 a barrel.

"Should Brent continue to drop towards $100 that would make the case for $85" for the U.S. benchmark, he said.

July Brent crude was down $1.91 at $106.48 a barrel, after a low of $105.92 a barrel.

Strength in the dollar and the worries about a potential contagion effect of economic instability through the euro-zone nations stung oil futures as the market already is witnessing steady shrinkage in the "war premium" that has grown over the past several months amid in impasse with Iran and the world's major powers over Tehran's nuclear program.

United Nations nuclear officials said a tentative deal has been reached with Iran to open controversial sites for inspection as major internationals talks on the issue were about to get under way in Baghdad. The potential breakthrough comes as a July 1 European Union embargo on imports of Iranian crude looms and Saudi Arabia and others in the Organization of Petroleum Exporting Countries have boosted output sharply to cover potential lost oil supplies from Iran.

Past threats from Iran to block the key Strait of Hormuz, the export route for critical Gulf oil supplies, has inflated prices by $15-$20 over the past several months. OPEC's explicit efforts to pull prices down to around $100 by raising supply has contributed to a selloff.

The Energy Information Administration said crude oil stocks rose 883,000 barrels last week, to 382.5 million barrels, the most since Aug. 3, 1990. Stockpiles have gained by 10.5%, or 36.2 million barrels over the past nine weeks. The surplus of crude stocks to the five-year average has ballooned to 8.4%, or 29.8 million barrels, from less than 6 million barrels before the build up began.

EIA data also showed U.S. oil demand dropped 1.7% last week from a level that was the highest so far this year. Demand for gasoline fell 3.8% last week to a one-month low, the EIA data show.

Reformulated gasoline blendstock futures for June delivery were 3.95 cents lower, at $2.8975 a gallon. June heating oil traded 3.54 cents lower, at $2.8260 a gallon.

Write to David Bird at [email protected]