Crude oil plummeted almost 6% and closed well below $90 on Thursday as the financial world continues to retreat from risky assets amid mounting fears about the U.S.s ability to stave off a double-dip recession.
The heavy selling in the energy markets coincided with a 370-point intraday tumble on the Dow Jones Industrial Average and left crude at its weakest level since February 22.
Continue Reading Below
Were seeing the market reflecting a global economic slowdown, said Phil Flynn, an energy analyst at PFGBest and a FOX Business contributor. Its going to take something big to stop the downward momentum.
Crude, which turned negative on the year and is on track for its fifth consecutive daily decline, closed at $86.63 a barrel, down $5.30, or 5.77%. The commodity remains well off its 2011 settle high of $113.93 that was hit in late April amid fears about supply disruptions in the Middle East.
Natural gas slid 16.2 cents per million btus, or 4.01%, to $3.928. RBOB gasoline lost 15.1 cents per gallon, or 5.18%, to $2.7794.
Economically-sensitive commodities like crude oil and copper have suffered steep selling in recent days as Wall Street frets about the possibility the U.S. economy will slip back into a recession, which is technically two consecutive quarters of negative growth.
The overall economic situation is still quite gloomy so prospects for demand picking up is even less likely, said Darin Newsom, senior commodities analyst at DTN. This whole thing put together is just causing money to leave the [energy] market in droves.
After modest growth in 2010, the U.S. economy appears to have nearly stalled out in recent months. Reports released last week showed GDP inched just fractionally higher in the first quarter and remained under 2% last quarter amid stagnant job growth and weak demand.
The energy markets were under pressure on Wednesday from weak inventory data that revealed an unexpected jump in gasoline stockpiles.
Theres no fundamental reason for domestic crude oil to have much support. Supply and demand are adequate right now, said Newsom. Both sides of the market are trying to get out right now.
The rush to get out of the energy market marks a significant shift. Just a few months ago during the turmoil in the Middle East there were serious worries about being able to keep up with demand, Flynn said. Now you have to worry about a potential oil glut.
The selling in the energy markets was putting heavy pressure on equities. The SPDR energy sector plummeted 5.12% Thursday afternoon, making it the worst performing sector on Wall Street. Energy-related stocks like Chevron (NYSE:CVX), BP (NYSE:BP) and Valero (NYSE:VLO) all posted deep losses.
Underscoring the turbulence in the energy market, the CBOE crude oil volatility index soared 15.96% to $39.49 -- its highest level since mid-May.
Were just seeing the Dow get pummeled and this is raising the fear in investment circles far and wide, it doesnt matter what sector, said Newsom.