Oil plummets over 8 percent on investors' exit

15:30, May 06, 2011      

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Crude prices plummeted on Thursday as investors revaluated the risks and chose to take profits and exit the crude markets amid a rising dollar, signs of less demand and news of a supply increase.

The dollar surged against the euro after ECB President Jean- Claude Trichet gave no indication to raise interest rate in the eurozone next month. The dollar index, which tracks the dollar's performance against a basket of currencies, rallied 1.6 percent, pressuring the commodities markets.

The U.S. Labor Department reported on Thursday that jobless claims unexpectedly jumped by 43,000 to 474,000 in the week ended April 30, the most since August, indicating weak signs for the U.S. economy and hurting oil demand expectations.

Meanwhile, with India's larger-than-expected interest rate hike and China's tightening monetary policy, concerns about the oil demand emerged.

And according to the U.S. Energy Department, high prices dampened the gasoline and heating oil demand. Gasoline demand for last week tumbled to 9.1 million barrels per day, about 2 percent below the level in the same period last year.

At the same time, there was news saying OPEC was considering raising production to boost supply.

"The investors started to revaluate the risks since the news of Osama bin Laden's death," said Raymond Carbone, a senior oil trader at the New York Mercantile Exchange. "Investors are exiting from commodities markets and rushing into safer areas, such as cash and the U.S. dollar."

The crude oil has kept rising since mid-February when OPEC member state Libya witnessed violent conflicts, causing concerns about supply disruption. Also thanks to the weak dollar, oil breached 100 dollars a barrel in early March and hit the highest level in April, with New York benchmark topping 114 dollars a barrel and Brent crude surpassing 127 dollars a barrel.

"The market started correction," Carbone said. "It is not possible to go only in one direction."

Light, sweet crude for June delivery plunged 9.17 dollars, or 8. 39 percent, to settle at 99.80 dollars a barrel on the New York Mercantile Exchange. In London, Brent crude for June delivery also sharply fell by nearly 9 percent and last traded around 110 dollars a barrel.

Source: Xinhua
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