Oil prices tumbled hard Thursday as traders rushed out of risk-based assets after the Federal Reserve's stimulus effort--and its dour economic outlook--left them cold.
Light, sweet crude for November delivery on the New York Mercantile Exchange was down as much as $6.26, or 7.2%, at its lowest point of the day, dipping below the psychologically important $80-a-barrel level several times during the afternoon.
The price settled down $5.41, or 6.3%, at $80.51 a barrel. Brent crude for November delivery on the ICE Futures Europe exchange settled down $4.87, or 4.4%, at $105.49 a barrel.
Analysts said oil's fall reflected disappointment that the Fed didn't take more aggressive action to stimulate the economy--and nervousness over the down-beat tone of the Fed statement on economic growth. The Fed on Wednesday announced a plan to buy $400 billion in long-dated Treasurys while selling shorter-dated Treasurys, in the hopes of spurring long-term lending and pumping up the economy.
Some in the market had hoped the Fed would add more bonds to its portfolio and pump more dollars into the economy, rather than merely shifting the duration of its debt holdings.
"The market thought there was going to be some rabbit pulled from the hat," said Matt Smith, an analyst with Summit Energy. "The lack of anything else forthcoming was really the sucker punch here." In a research note, he said the markets were taking the Fed's move like a "slap in the face."
The Fed statement also inventoried a laundry list of economic maladies, and warned of "significant downside risk to the economic outlook"--leading to a whole-scale selloff of growth-based assets, such as equities, crude and other commodities. The Dow Jones Industrial Average was off more than 400 points.
Just a week after Nymex prices hit a one-month high, they are now hitting a one-month low, with a 10% swing in between. Nymex crude is now back down in the range it traded in during the summer and fall of 2010, when crude was on its path its May 2 close of $113.52 a barrel. Oil has since come off more than $33 a barrel, or 29%.
Since early August, oil futures have had intraday swings greater than 5% in 10 separate sessions--more than a quarter of total trading days.
In a research note Thursday, Goldman Sachs said the market is trying to reconcile falling global oil inventories with the threat of future demand declines.
"Global crude oil markets continue to be torn," Goldman energy analyst David Greely wrote. Despite falling expectations of global growth, "U.S. crude oil inventories are approaching pre-recession levels and inventories outside the United States are already there," he wrote.