Oil hovered near $68 after falling to a seven-month low today, extending losses for the third session this week, as US crude stockpiles scaled a new high while concerns over tighter financial regulation in the US and Europe hit global equities and most commodities.
Germany's move to ban naked short-selling in shares of 10 key financial institutions and new rules from the US Securities and Exchange Commission and stock exchanges to curb trading when markets plunge increased uncertainty in the financial markets, dampening investors' appetite for riskier assets.
US crude for June delivery fell as low as $67.90, its lowest intraday level since $66.22 hit on September 30th. By 0445 GMT, the contract was down $0.76 at $68.65 a barrel.
London Brent crude was down 55 cents at $73.88 a barrel after hitting a three-month low. Brent crude fell as low as $73.21, down $1.22 a barrel by 0049 GMT, its lowest since $72.55 hit on February 16th.
The fall in oil prices was purely based on economic concerns in Europe, said Jonathan Barratt, managing director at Commodity Broking Services in Sydney.
Investors moved into safe havens such as the dollar and the yen on fears tighter financial regulation would derail the global economic recovery.
The euro fell to a fresh four-year low today while the dollar index, which tracks the US unit's performance against a basket of major currencies, rose to a 14-month high of 87.458 before slipping back to 87.179. A stronger dollar makes oil more expensive for holders of other currencies.
"The (oil) market is getting too far ahead of itself," Barratt said. "The current financial issues will be looked at and solved and we'll get back to solid fundamentals which suggest growth."
Crude oil inventories at the key storage hub at Cushing, Oklahoma, rose 914,000 barrels last week to a fresh record high of 37.99 million barrels, data from industry group the American Petroleum Institute (API) showed on Tuesday.
However, the overall US crude stockpiles fell unexpectedly last week while gasoline stocks rose.
"Refinery rates are high again. Crude oil stocks have to be bought so that they can refine it," Mr Barratt said. "It's gasoline season; we're getting into the busiest time of the year."
US refinery utilisation rose by 1 percentage point to 85.9 per cent of capacity last week, API data showed. This caused crude inventories to fall by 794,000 barrels in the week to May 14th, API data showed, versus analyst expectations of a 700,000-barrel rise in the latest Reuters poll.
Gasoline stocks rose unexpectedly, by 981,000 barrels last week, versus an expected fall of 600,000 barrels, according to the average analyst estimate.
Distillates, including heating oil and diesel, fell 331,000 barrels, versus expectations of a 1.3 million barrel rise.
The market is expecting another set of data from the US Energy Information Administration which is set to arrive today at 1400 GMT.
Reuters