Oil tumbled below $90 a barrel in New York Wednesday, erasing gains through 2011, after U.S. supplies increased to a 22-year high and European leaders met to discuss the euro region’s debt crisis.
Futures fell 2.1 percent after the Energy Department said stockpiles rose 883,000 barrels to 382.5 million barrels last week. The European Union summit is the 18th since Greece was shaken by debt and the first since an anti-austerity campaign carried Francois Hollande to France’s presidency. The euro sank to the lowest level in almost two years.
“I’m looking for prices to fall to the mid-$80s and eventually test last summer’s low of near $75,” said Todd Horwitz, chief strategist at Adam Mesh Trading Group in Chicago. “We’re heading lower because supplies continue to rise and the dollar is surging against the euro, hurting all commodities.”
Crude oil for July delivery fell $1.95 to $89.90 a barrel on the New York Mercantile Exchange, the lowest settlement since Oct. 21. Prices are down 9 percent this year.
Brent oil for July settlement fell $2.85, or 2.6 percent, to end the session at $105.56 a barrel on the London-based ICE Futures Europe exchange, the lowest level since Dec. 19.
U.S. crude inventories were forecast to gain 1.65 million barrels, according to the median of 12 analyst estimates in a Bloomberg News survey.
Supplies of crude at Cushing, Oklahoma, the delivery point for the New York oil contract, rose 1.67 million barrels to a record 46.8 million, the department said.
Crude output increased 90,000 barrels a day to 6.24 million in the week ended May 18, the highest level since February 1999. Production has climbed 12 percent in the past year.
Gasoline inventories fell 3.3 million barrels to 201 million last week, the report showed. Demand for the fuel tumbled 3.8 percent to 8.63 million barrels a day, the biggest decline since the week ended Jan. 6.
Hollande teamed with Spanish Prime Minister Mariano Rajoy to press for Wednesday’s meeting of EU leaders to break with budget-cutting policies backed by German Chancellor Angela Merkel that have failed to stabilize the 17-nation euro area and led to speculation that Greece might be forced out.
“I wouldn’t pick a bottom for the market,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.
The euro slipped as much as 1.1 percent to $1.2545, the lowest level against the dollar since July 2010. A falling euro reduces the appeal of raw materials as an investment. The Standard & Poor’s GSCI Index of 24 commodities was down 1.9 percent and touched the lowest level since December.
The U.S. economy will probably tip back into recession next year if Congress doesn’t address an impending “fiscal cliff,” the Congressional Budget Office said yesterday. China’s leaders pledged to intensify “fine-tuning” of policies in the second government statement in four days signaling a commitment to growth after data showed slowing trade and industrial output.
“There are a lot of macroeconomic worries pulling oil lower,” said Mike Wittner, head of oil market research at Societe Generale SA in New York. “Worries about Europe and the Greek contagion are getting worse. There are also concerns about the U.S. going over a fiscal cliff and the Chinese economy having a hard landing.”
“The moves in just about all the markets are related to what’s going on in Europe,” said Phil Flynn, an analyst at futures brokerage PFGBest in Chicago. “There’s a little bit of optimism that the Iran talks will succeed.”
The International Atomic Energy Agency will be given access to Iran’s Parchin military complex, Director General Yukiya Amano said yesterday. World powers resumed talks with officials from the Islamic republic in Baghdad Wednesday.
“We’ve known for a while that inventories were rising, the euro zone was in trouble and that there were going to be negotiations with Iran,” Evans said. “Investors are reacting to elements that were in the market for quite a while.”
The U.S., U.K., France, Russia, China and Germany presented a revised proposal to Iran Wednesday before adjourning, said Michael Mann, the spokesman for Catherine Ashton, the EU’s foreign policy chief. The countries want Iran to reduce production of 20 percent-enriched uranium in exchange for the offer, he said, without providing specifics.
Negotiators may meet again Thursday depending on how the Iranians react to the proposal, Mann said. Diplomats will reconvene for more meetings tonight, Iranian state-run Press TV reported, without saying where it got the information.\ “On top of all the macroeconomic worries there’s reduced tension about Iran’s nuclear program,” Wittner said. “There’s speculation that some sort of progress will be made.”
Electronic trading volume on the Nymex was 432,251 contracts as of 2:37 p.m. in New York. Volume totaled 433,160 contracts Tuesday, 26 percent below the three-month average. Open interest was 1.44 million, the lowest since Feb. 21.
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