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Oil prices fell sharply Thursday, to below $97 a barrel, a day after the U.S. Federal Reserve indicated it could begin to wind down its massive stimulus program later this year, providing the U.S. economy remains on the upswing.
By early afternoon in Europe, U.S. benchmark oil for July delivery was down $1.44 to $96.80 a barrel in electronic trading on the New York Mercantile Exchange. Earlier in the session, it fell as low as $96. The more heavily traded August contract was down $1.46 at $97.02 a barrel.
On Wednesday, the Nymex July contact dropped 20 cents to finish at $98.24 a barrel when Fed chairman Ben Bernanke suggested that he was optimistic about the U.S. economy — and that the Fed might start scaling back its massive $85 billion-a-month bond-buying program this year if conditions continue to improve.
The Fed's stimulus program has been a boon to stock and commodities markets, where investors have turned in search of returns that outgun those on bonds.
Analysts said the slump in oil prices could be just a short-term response to a change in U.S. central bank policy. In the medium term, the scaling back of such a loose monetary policy will be "a positive for the oil market, suggesting that the economy is on a sustainable growth trajectory," said Caroline Bain, lead commodities analyst for The Economist Intelligence Unit.
Oil prices were also weighed down by a survey showing a slowdown in manufacturing in China. HSBC's preliminary purchasing managers' index fell to a nine-month low of 48.3 in June, down from 49.6 in May. Numbers below 50 indicate a contraction.
With mature economies like Europe and the U.S. struggling to keep expanding at a steady pace, China and emerging markets have accounted for most of the growth in oil demand over the past several years.
"The figure ... suggests that the Chinese economy is cooling off quite markedly," said a report from Commerzbank in Frankfurt. "This means more dark clouds on the horizon over China — and other emerging economies as well — calling for caution."
Commerzbank added that supply risks like the civil war in Syria and protests in Turkey should limit oil prices from falling much more.
Separately, the American Petroleum Institute said U.S. crude stocks fell by about 4.3 million barrels for the week ending June 14 to 362 million barrels. That contrasted with figures — the market benchmark — given by the U.S. Energy Information Administration, which said that crude inventories grew by 300,000 for the week. Analysts expected supplies to drop by 1 million barrels.
Brent crude, a benchmark for many international oil varieties, was down $1.88 to $104.24 a barrel on the ICE Futures exchange in London.
In other energy futures trading on the Nymex:
— Wholesale gasoline was down 4.63 cents at $2.8371 a gallon.
— Heating oil fell 4.61 cents to $2.9264 per gallon.
— Natural gas retreated 6.8 cents to $3.895 per 1,000 cubic feet.