Oil drops on risk aversion, growing economic woes

By Robert Gibbons

NEW YORK (BestGrowthStock) – U.S. oil futures tumbled 2 percent on Tuesday, falling below $70 a barrel as concerns over global economic growth revived risk aversion, sending investors fleeing from the euro to dollar safety.

“It’s risk aversion, falling stock markets and a stronger dollar. People are worried the euro zone crisis will spread and derail the global economic recovery,” said Carsten Fritsch, an analyst at Commerzbank.

U.S. crude fell $1.46, or 2.08 percent, to settle at $68.75 a barrel, trading in a range from $67.15 to $69.91.

Market sources noted crude pared losses after the U.S. consumer confidence index hit a two-year high in May.

Dropping back from a 2010 peak of $87.15 on May 3, the highest since October 2008, U.S. crude prices could be set to have the biggest monthly loss since the height of the financial crisis.

ICE Brent crude fell $1.62, or 2.28 percent, to settle $69.55 a barrel.

The tumble in oil has sent OPEC’s reference crude oil basket below the lower end of the $70-$80 range many in the producer group have said is the preferred range.

The euro neared a four-year low against the U.S. dollar and hit a 8-1/2-year trough against the yen after Spain’s weekend takeover of a small bank fueled fears the euro zone’s sovereign debt crisis may spread.

The U.S. dollar index (Read more about the global trade. ) (.DXY: ) rose 0.4 percent as investors moved away from commodities to the greenback.

World stocks fell to their lowest level since September 2009 on Europe contagion fear and amid growing tension between North and South Korea. (MKTS/GLOB: ) U.S. stocks (Read more about the stock market today. ) fell early, joining in the broad global sell-off and the concern that economic recovery will be hampered, but pared losses late and ended mixed. (.N: )

Equities are broadly viewed as an indicator of future energy demand growth.

In an indication of how Europe’s crisis is affecting investor perception, Bank of America Merrill Lynch cut its oil demand growth forecasts for 2010 to 1.5 million barrels per day from 2 million bpd due to anticipated slower global economic growth in the second half of 2010.

SUPPLY COMFORT

Oil markets remain well supplied, with the Organization of the Petroleum Exporting Countries pumping about 2 million barrels per day above agreed output targets.

Oil ministers from Kuwait and the United Arab Emirates on Tuesday downplayed the slide in oil prices and said OPEC had no plans to call an emergency meeting.

But ministers from Libya and Algeria have expressed more concern as crude prices headed below $70.

A Reuters survey showed analysts were divided over the direction of U.S. oil inventories last week. Averaging the expanded poll of 15 analysts yielded a forecast for crude to have risen last week, but only 200,000 barrels. (EIA/S: )

Distillate stocks, including heating oil and diesel, were expected to be unchanged, with gasoline stocks seen down only 200,000 barrels.

Crude oil stocks at the delivery hub for U.S. futures contracts in Cushing, Oklahoma, are already at a record high.

The American Petroleum Institute will release its oil inventory report on Tuesday at 4:30 p.m. EST (2030 GMT).

The U.S. Energy Information Administration’s weekly report is due on Wednesday morning.

U.S. retail gasoline demand slipped in the week ending May 21, against the previous week, MasterCard SpendingPulse report said on Tuesday. But demand was up versus the year-ago period.

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(Additional reporting by Gene Ramos in New York, Emma Farge in London and Alejandro Barbajosa in Singapore; Edited by Sofina Mirza-Reid)

Oil drops on risk aversion, growing economic woes