Oil prices tumbled more than US$6 a barrel on Friday — the biggest one-day percentage plunge in nearly four years — after a rebounding dollar and a Russian troop pullback in Georgia sparked another frenzied sell-off.
Crude’s nosedive wiped out all the gains from the previous day’s big rally and reaffirmed the belief that high energy prices are still cutting into consumer demand for fossil fuels in the US and overseas.
Light, sweet crude for October delivery fell US$6.59, or 5.43 percent, to settle at US$114.59 a barrel on the New York Mercantile Exchange. It was crude’s largest single-day price drop percentage-wise since Dec. 27, 2004, when prices dropped 6.47 percent.
PHOTO: BLOOMBERG
In dollar terms, it was oil’s steepest one-day slide since Jan. 17, 1991, just after the start of the Gulf War. Crude prices had risen for three straight days, including an almost US$6 rally on Thursday.
In London, October Brent crude fell US$6.24 to settle at US$113.92 a barrel.
“This is extreme volatility,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Illinois. “The fact that we erased all of yesterday’s gains so fast suggests that we’re still in a bear market. There’s just not much demand out there.”
Crude’s violent fall accelerated throughout the day on renewed bullishness in the dollar and an apparent easing of geopolitical tensions.
On Thursday, worries about Russian hostilities helped push crude prices up US$5.62 to US$121.18, crude’s highest settlement price in more than two weeks.
“Obviously, yesterday’s rally was overcooked and we’re simply taking back some of that speculative risk premium we injected into the market,” Ritterbusch said.
Russian troops began withdrawing from key Georgian positions on Friday, the day the pullback was to be completed under a US-backed ceasefire. Oil traders were still eyeing the conflict amid concerns that another flare-up of violence could sever key oil shipments bound for Western countries.
“It’s still speculative whether Russia will use oil as a weapon to punish the West,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. “But it has certainly focused the market on that geopolitical threat.”
Meanwhile, London-based BP PLC last week shut down its Baku-Supsa oil pipeline — which runs through the center of Georgia from Baku in Azerbaijan to Supsa on Georgia’s Black Sea coast — because of security concerns.
The line, which has a 150,000-barrel-a-day capacity, had recently been pumping around 90,000 barrels a day, a BP spokeswoman said.
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