Oil dives $4 as supplies rise, Saudi talk spooks funds

Wed Sep 19, 2012 3:35pm EDT
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By Robert Gibbons and Jonathan Leff

NEW YORK (Reuters) - Oil prices slumped $4 on Wednesday as Saudi efforts to tame prices and a massive rise in U.S. crude inventories after Storm Isaac fuelled a third day of heavy fund liquidation, one of the biggest sell-offs in more than a year.

European benchmark Brent crude crashed below the 50- and 200-day moving-average, sparking technical selling that pushed it to the lowest in six weeks. Big hedge funds were seen liquidiating bullish positions built ahead of the Federal Reserves' third dose of stimulus, announced last week.

The rout began late on Monday with an abrupt flash crash triggered by a large sell order from a macro-fund, traders say. Prices declined further on Tuesday and Wednesday, taking this week's slide to more than 7 percent after Saudi Arabia said it would act to move prices down from a four-month high.

"People are thinking that maybe the Saudis are going to produce more, and some funds are taking the opportunity to liquidate positions," said Christopher Bellew at Jefferies Bache.

Prices fell further after U.S. data showed weekly oil stockpiles jumped 8.5 million barrels, far more than expected. <EIA/S>

Brent November crude fell $3.84, or 3.4 percent, to settle at $108.19 a barrel, having recovered from a session trough of $107.40, the lowest since August 3.

Brent's three-day drop stood at more than 7 percent, the biggest since a 7.73 percent dive in early June. That, in turn, was the biggest three-day slide since August, 2011.

U.S. October crude, which expires on Thursday, fell $3.31, or 3.47 percent, to settle at $91.98 a barrel after dropping below the 50-day moving average of $93.08. U.S. November crude fell $3.32, to $92.30 a barrel.   Continued...

A gas pump is seen hanging from the ceiling at a petrol station in Seoul June 27, 2011. South Korea, as a member of the 28-nation IEA, will release 3.46 million barrels oil stocks over 30 days after a meeting with local refiners later on Monday. REUTERS/Jo Yong-Hak