Brent crude oil futures tumbled Tuesday to trade below $99 (Dh363) a barrel yesterday while the benchmark West Texas Intermediate (WTI) light sweet crude on the New York Mercantile Exchange recovered to trade a little bit below $81 a barrel as nervousness gripped markets following a 5.55 per cent drop in Dow Jones Industrial Average late on Monday as a reaction to US debt downgrade by credit ratings agency Standard & Poor's (S&P).
The plunge of the Dow below 11,000 mark unnerved investors who fear the US, the world's largest economy and the biggest oil importer would slip into a double-dip recession, heightening the risk of another global economic slowdown that would destroy world oil demand.
Drop from peak
Brent crude fell as much as $5 to $98.74 a barrel, the lowest intraday price since February 8, and was down $4.06 at $99.68, down from an April peak above $127.
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The US crude touched $75.71, its lowest since September 2010 before recovering some lost ground as talks of a third round of quantitative easing by the US Federal Reserve started doing the rounds.
"September crude oil traded sharply lower throughout the session, reaching its lowest level since August 31, 2010. Crude oil came under pressure from slowing economic growth prospects following S&P's credit downgrade of US debt. While there seemed to be hope for a rebound earlier this morning after the European Central Bank bought sovereign debt, traders said that the size and scope of the programme was not enough to make a lasting impact," the CME Group said in its latest analysis.
"Crude oil futures had slumped by more than 15 per cent over the last five days. Fears that euro zone's debt troubles will escalate into a global crisis added gloom to the oil markets," Pradeep Unni, senior relationship manager at Dubai-based commodities trading firm Richcomm Global Services DMCC told Gulf News.
"In the near term, any additional sell off in global equities may further drag the oil prices down," he added.
Asia, Europe supply steady
Leading Opec producer Saudi Arabia has left supply to Asian and European customers unchanged in September despite a heavy fall in oil prices in the past week as global economic growth slows.
Industry sources and traders told Reuters the kingdom would supply the same volumes of crude to its customers in Asia and Europe under term contracts in September. Analysts said it was only a matter of time before Saudi had to cut production as demand for its oil slows.
"We are seeing the same volumes," said a major customer in Europe on condition of anonymity.
Two buyers in Asia said they received unchanged volumes. "We are in line with our usual request," said a second big European customer. "This was decided when prices were higher so I don't think there will be any consequences in September."
Oil prices at just over $101 (Dh370) for Brent, down from nearly $120 just 10 days ago, are not far from levels where Riyadh may need to act.
Saudi Arabia's break-even budget price is $95 per barrel this year and $85 next year, according to Wall Street bank Merrill Lynch.
Opec's June output hit its highest since the full onset of the financial crisis in October 2008, according to Reuters estimates , lifted by increased production from Saudi Arabia.
The kingdom ramped up output despite a failure to persuade fellow members to do the same and amid calls from industrialised nations to provide more barrels to help bring prices down and protect recovery.
Saudi Arabia is believed to have trimmed very little if any of its output in July despite being angered by a shock release of emergency stockpiles by the industrialised nations at the end of June.