Crude oil dropped below $30 a barrel in New York for the first time in 12 years on concern that China’s market rout will affect demand for fuel.
West Texas Intermediate (WTI) crude oil tumbled to as low as US$29.91 a barrel at 2:3 PM on Tuesday, the lowest since December 2003.
“Psychology has completely taken over,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “Market sentiment has shifted so far that it’s self-fulfilling. There’s been a big cutback in CFTC positions, which shows that everyone is heading for the exits.”
Oil is particularly leveraged to the dollar and may fall between 10 to 25 percent if the currency gains 5 percent, Morgan Stanley analysts including Adam Longson said in a research note dated Monday. Societe Generale SA cut its average 2016 Brent forecast to $42.50 a barrel from $53.75 on Monday, while Bank of America Corp. trimmed its forecast to $46 a barrel from $50.
Crude also fell as the U.S. dollar strengthened, diminishing the appeal of commodities denominated in the currency. The Bloomberg Commodity Index, a gauge of 22 raw materials slumped to the lowest level since 1999.
“There are no technicals holding up the price so we’re looking at a falling knife,” said Jason Schenker, president of Prestige Economics LLC in Austin, Texas. “Concern about global economic sentiment and dollar strength are continuing to weigh on the market.”