NYMEX crude futures reversed course to settle lower Thursday as an earlier wave of optimism regarding further US quantitative easing receded.
NYMEX October crude settled 99 cents lower at $96.27/barrel. The front-month contract spent most of the day in positive territory, although it ranged widely -- from a high of $97.92/b to a low of $95.75/b.
NYMEX products showed volatility as well. NYMEX September RBOB settled 1.16 cents higher at $3.1158/gal, ranging between $3.1395/gal-$3.0946/gal. Heating oil ranged between $3.1605-$3.1209 before settling 43 points higher at $3.1330/gal.
ICE October Brent settled 10 cents higher at $115.01/b.
Crude was higher for much of the day as sustained expectations for fresh quantitative easing measures continued into Thursday after Wednesday's release of the Federal Open Market Committee's July 31-August 1 meeting minutes.
However, equities seemed to stage a retreat after St. Louis Federal Reserve President James Bullard stated Thursday on CNBC that another round of stimulus was unlikely as economic growth has recently edged up slightly, and that the markets had overreacted to the FOMC minutes.
Around the NYMEX settle, the Dow Jones Industrial Average was 100 points lower at 13,073 and the S&P 500 was 9 points lower at 1,405.
Equities had begun to sell off after pushing multiyear highs, according to commodity analyst Matt Smith of Summit Energy Services, while at that time crude still had some room to climb.
Oil futures, lagging equities, began to retreat shortly after noon EDT, although products were able to stage a late rally to settle higher.
Carl Larry, president of Oil Outlooks and Opinions, dismissed Bullard's comments, chalking up the late declines in crude to the potential impact of Tropical Storm Isaac.
"If Issac hits the US Gulf Coast and enough production is shut-in, the door opens wide for for the US government to release crude from the Strategic Petroleum Reserve," he said.
Tropical Storm Isaac has moved into the Caribbean Sea and is expected to strengthen in the next 48 hours, the US National Hurricane Center said Thursday (See story, 0907 GMT).
But a glance at Wednesday's and Thursday's crude options implied volatility showed the market perhaps considered crude futures overbought, despite the bull run sparked by the FOMC minutes.
"We observed the puts rise against calls in the prompt smile," said Kip Perkins, head of Market Data Services at Parity Energy, referring the shape of the implied volatility skew, or curve. "The smile is telling us that there's no real conviction that crude should be this high."
WEAK MACROECONOMIC DATA HELPS QE CASE
Earlier US macroeconomic data releases were disappointing.
"With crude getting very minor support from EIA data Wednesday, the focus remains less on fundamentals and more on 'bad is good' macroeconomic indicators" said Summit's Smith.
Negative data has lately had a bullish effect on markets when investors believe it will lead to further quantitative easing.
In the US, continuing jobless claims rose week-on-week to 3.317 million from 3.305 million. Initial jobless claims were higher than economists expected at 372,000, up from 366,000 a week ago.
US new home sales data, however, beat economists' expectations, rising to 372,000 in July from 350,000 in June.
In Europe, hopes for a wider eurozone stimulus may have softened after German and eurozone-wide manufacturing reported stronger-than-expected numbers -- at 46.2 and 45.1, respectively -- although both still indicate contractionary movement, which could encourage more easing.
And expectations that the Chinese government would step in and provide some fresh stimulus for its economy received a boost earlier Thursday, with HSBC reporting manufacturing activity in the country fell to a nine-month low in August.
"[M]anufacturing data out of China signals the potential for slowing demand," Tradition Energy analyst Addison Armstrong said in a note.
According to the preliminary figures, the closely watched purchasing managers' index, or PMI, which gauges nationwide manufacturing activity in China, hit 47.8 this month, the lowest level since November.
