Oil dropped more than three per cent on Wednesday to the lowest level in seven months as fears about the Eurozone crisis sparked an erosion in risk appetite across markets.
Prices for US benchmark West Texas Intermediate crude futures headed toward their biggest monthly drop since the financial crisis of 2008, breaking below a key technical level as investors headed to perceived safe havens.
Worries about Europe mounted as borrowing costs rose for Spain and Italy and the latest poll showed a lead for Greece’s left-leaning, anti-austerity parties ahead of next month’s election.
The crisis, which could dent fuel demand, has helped knock Brent prices down to nearly $100 per barrel, far off 2012 peaks over $128 hit in early March. Equities and other commodities, including industrial metals platinum and copper, also fell.
Wall Street stocks fell more than one per cent, with European equities also posting sharp losses, while US Treasuries rallied, sending yields of benchmark ten-year notes to an at least 60-year low.
“This is about a global slowdown, European concerns, and a lack of liquidity,” said Richard Ilczyszyn, chief market strategist and founder of iitrader.com LLC in Chicago.
“Funds have run for the hills, and I believe those were the guys who were propping up the market.”
The Thomson Reuters-Jefferies CRB index, a global benchmark for commodities, tumbled 1.68 per cent to the lowest levels since September 2010.
Brent July crude fell $3.21 to $103.47 a barrel, the lowest settlement since Dec. 16. Brent prices are down more than $15 a barrel so far in May, heading for the biggest monthly decline since October 2008.
US July crude slumped $2.94 to $87.82 a barrel, the lowest settlement since Oct. 21, 2011. Front-month crude prices were headed for a loss of about 17 per cent for May, the biggest monthly drop since December 2008.
Crude prices found some short-lived support intraday on news that the European Commission had called for the euro zone to move to a banking union and consider directly recapitalizing banks from its bailout fund.
Hopes that number two oil consumer China would act to counter slowing growth were dimmed after influential academics said Beijing should shun aggressive fiscal stimulus, in remarks published in leading state-backed newspapers on Wednesday.
Those views joined a chorus of commentary countering market expectations that China might unveil a stimulus package similar to the 4 trillion yuan ($630 billion) in spending unleashed during the global financial crisis.