Oil drops sharply on U.S. economic data, technicals

Thu May 3, 2012 5:46pm EDT
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By Gene Ramos

NEW YORK (Reuters) - Crude oil futures dropped for a second straight day on Thursday as more signs of slowing U.S. economic growth and swelling U.S. inventories sparked a wave of selling that sent prices crashing through key support levels.

U.S. crude ended 2.6 percent lower, the biggest one-day percentage loss since December 14, while Brent crude finished down 1.8 percent, racking up a 3 percent loss in two straight days, its biggest two-day percentage loss since February 28.

Slower-than-expected growth in the massive U.S. service sector dragged on markets as traders awaited the April U.S. payrolls data on Friday. Oil markets have been balancing supply concerns stemming from a string of disruptions across the globe and the potential loss of Iranian crude due to Western sanctions against fuel demand, which has been hit by the struggling economy and high prices.

OPEC Secretary General Abdullah al-Badri said the producer group was worried about the impact of high prices -- which neared $130 a barrel -- on demand and that it was working hard to bring them down by pumping above official production targets.

Additional pressure on prices came after industry data provider Genscape reported that crude inventories at the Cushing, Oklahoma, delivery point for U.S. oil futures hit a fresh record high on May 1.

The build helped widen Brent's premium to U.S. crude, which has traded in between $12 and $16 a barrel in recent weeks ahead of a pipeline reversal in mid-May that will help alleviate a glut in Midwest inventories.

In London, ICE Brent crude for June delivery settled at $116.08, down $2.12, after breaking below its 100-day moving average of $117.34. A week ago, it hit a high of $120.17, highest since mid-April.

U.S. June crude finished down $2.68 at $102.54, the lowest front-month settlement in two weeks. Near the close, it dropped to a session low of $102.36, below the 100-day moving average of $102.37.   Continued...

A motorist prepares to put fuel into her car at a petrol station in Melbourne July 3, 2008. REUTERS/Mick Tsikas