Oil Erases 2011’s Gains on Economy Concern

By Mark Shenk and Yi Tian -

Crude oil wiped out all of its gains for 2011 and natural gas traded below $4 for the first time since April in New York as concern the global economy is weakening sent raw materials prices tumbling around the world. Photographer: Andrew Harrer/Bloomberg

Crude oil wiped out all of its gains for 2011 and natural gas traded below $4 for the first time since April in New York as concern the global economy is weakening sent raw materials prices tumbling around the world.

All 24 commodities on the Standard & Poor’s GSCI Index declined slipped, as a rout in equities drove the Standard & Poor’s 500 Index to its worst nine-day slump since March 2009. Silver dropped 6 percent, gold retreated from a record and wheat slumped the most since June.

“There’s a lot of pessimistic news on the macro-economic front and that’s hitting commodities,” said Michael Wittner, the head of oil-market research at Societe Generale SA in New York and the fourth-most-accurate forecaster for West Texas Intermediate oil among 26 analysts ranked by Bloomberg in the past eight quarters. “If the economy continues to slow, demand for oil will take a hit.”

U.S. consumer confidence dropped last week to the lowest level in more than two months, paced by growing dissatisfaction among women and high earners, a report today showed. The Bloomberg Consumer Comfort Index was minus 47.6 in the period to July 31, the lowest level since May, compared with minus 46.8 the prior week.

Consumer spending dropped in June for the first time in almost two years as savings climbed, Commerce Department figures showed earlier this week. The U.S. economy grew less than forecast in the second quarter after almost stalling at the start of the year, another report from the agency showed.

Commodity Slump

The S&P’s GSCI Index of 24 raw materials fell 3.7 percent to 647.1, the lowest level since June 27. The index is up 2.4 percent this year after being as much as 20 percent higher on April 11.

Crude oil for September delivery declined $5.15, or 5.6 percent, to $86.78 a barrel at 2:24 p.m. on the New York Mercantile Exchange. Futures touched $86.04, the lowest level since Feb. 18 on an intraday basis. Brent for September settlement dropped $5.59, or 4.9 percent, to $107.64 a barrel on the London-based ICE Futures Europe exchange.

“There’s a growing realization that we may be facing a double dip or at least very anemic growth,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at Manulife Asset Management in Boston. “Until the economy shows signs of life, there’s nothing to turn this around.”

Stocks Fall

The Standard & Poor’s 500 Index fell 3.7 percent to 1,213.58 and the Dow Jones Industrial Average declined 3.4 percent to 11,490.81.

The dollar rose 1.4 percent to $1.412 against the euro, from $1.4323 yesterday. A stronger U.S. currency reduces the appeal of dollar-denominated raw materials as an investment.

“Fear and panic are good words to describe what we’re seeing today,” said Chris Barber, a senior analyst at Energy Security Analysis Inc. in Wakefield, Massachusetts. “Anytime markets move this hard there’s been a change in sentiment.”

Copper fell $182, or 1.9 percent, to $9,353 a metric ton on the London Metal Exchange, bringing the drop this year to 2.6 percent. Aluminum fell for 1.7 percent to $2,482 a ton, the seventh consecutive decline and the longest losing streak since January 2009.

“Sentiment has taken its turn for the worse at the moment,” said Gayle Berry, an analyst at Barclays Capital in London. “The markets are very worried about what the implications of fiscal austerity mean for the trajectory of economic growth, and therefore for metals demand.”

Silver Slides

Silver for immediate delivery dropped 5.1 percent to $39.5675 an ounce, the biggest decline since May 11. Platinum fell 3.1 percent to $1,726 an ounce and palladium dropped 5 percent to $756 an ounce, erasing gains for the year. Both metals are used in catalysts to remove exhausts in automobiles, and are more dependent on economic growth than gold.

Gold was little changed at $1,661.43 an ounce after climbing to a record $1,681.72 an ounce earlier today. Prices are up 17 percent this year.

Agriculture was the second-worst sector today after energy. Wheat fell 3.4 percent to $7.245 a bushel on the Chicago Board of Trade. Soybeans declined 1.8 percent to $13.4875 a bushel and corn dropped 1.9 percent to $6.9925 a bushel.

“The world economy is struggling, and that is slowing demand,” Don Roose, the president of U.S. Commodities Inc. in West Des Moines, Iowa, said in a telephone interview.