Crude oil prices plunge on demand worries

source: AFP

New York's main contract, WTI light sweet crude for June delivery, settled at $98.21 a barrel, down $5.67, or 5.5 per cent, from Tuesday's closing level.

In London, Brent North Sea crude for delivery in June slid $5.06 to close at $112.57 a barrel.

"It's really been a combination of bearish facts in the broader markets with signs of fundamental weakness for the crude complex," said Matt Smitt at Summit Energy.

The benchmark New York futures contract was under pressure from the moment the market opened as the dollar firmed, making dollar-priced oil less attractive to investors.

The West Texas Intermediate contract has almost wiped out the strong gains won on Monday and Tuesday, after shedding more than 15 per cent of its value in the previous week.

Selling accelerated after the US Department of Energy's latest weekly report on energy reserves, showing another increase in crude stockpiles and an unexpected rise in gasoline reserves in the world's largest oil-consuming nation.

Crude oil stockpiles rose by 3.8 million barrels to 370.3 million in the week ending May 6, the DoE said. The reserves had increased by almost 10 million barrels over the previous two weeks.

Gasoline reserves rose by 1.3 million barrels to 205.8 million, although experts had predicted a decline.

"The unexpected build to gasoline stocks has really hurt the market with signs of demand slowing over the last week," Smith said.

The negative market tone was already in play in pre-market trading in New York as investors digested data that showed China's inflation rate fell slightly in April but was still well above the government's target.

The inflation report stirred fresh worries that Beijing will take further action to curb inflation, slowing growth in the world's second-largest economy.

The market concluded that Chinese authorities would "continue on their slowdown regime to manage their inflation scare, which bodes for negative impact on their oil demand going forward," said John Kilduff of Again Capital.

The OPEC cartel on Wednesday held its forecast for world oil demand growth unchanged this year, saying rising consumption in China would make up for the uncertain outlook in the United States and in quake-hit Japan.

"World oil demand is forecast to grow by 1.4 million barrels per day in 2011, broadly unchanged from the previous report," the Organization of the Petroleum Exporting Countries (OPEC) said in its monthly market report.