Oil falls on economic concerns after stimulus rally

NEW YORK (Reuters) - Oil prices fell on Tuesday, extending the previous session's slide, as investors shifted focus from the likely economic benefit of central bank stimulus to concerns about sputtering global economic growth that prompted the U.S. Federal Reserve to launch its bond-buying program.

Also pressuring oil, a senior Gulf source said Saudi Arabia is working to lower oil prices and is producing around 10 million barrels per day and that a majority of OPEC members want oil prices around $100 per barrel and would be increasing production over the next few months.

"Unless there is a major supply disruption in the Middle East, there is nothing to push it higher," said analyst Andrey Kryuchenkov at VTB Capital. "Saudi will seek to drive it closer to $100 and everyone knows it."

Brent prices rose seven straight sessions before settling 2.4 percent lower on Monday, benefiting first from growing expectations that the Fed would act to bolster the economy, and subsequently from the actual launch of the stimulus program on Thursday after a two-day policy meeting.

Brent November crude fell $1.05 to $112.74 a barrel by 12:51 p.m. EDT (1651 GMT), having dropped as low as $112.52.

U.S. October crude was down 52 cents at $96.10 a barrel, having swung from $95.39 to $97.23, straddling the 200-day moving average of $96.57. The October contract expires on Thursday.

U.S. November crude was down 55 cents at $96.40.

U.S. total crude trading volumes remained lackluster on Tuesday, 38 percent under the 30-day average. Brent turnover outpaced U.S. crude, but still lagged Brent's 30-day average by 6 percent.

U.S. RBOB gasoline and heating oil futures pulled back on Tuesday, after they matched crude futures' 2.4 percent drop on Monday.

Gasoline's slip on Tuesday pulled it below $2.93 a gallon and under the 200-day moving average of $2.9454.

MONDAY SELL OFF

Monday's steep, rapid intraday sell-off left Brent down more than $5 at the day's low and U.S. crude off more than $4.

The sell-off came after Brent and U.S. crude did not extend the previous week's surge on the Fed stimulus that sent prices to four-month highs.

Traders explained the plunge variously as stemming from computer-based trading, sell stops triggered in a session characterized by light trading volume on the Rosh Hashana holiday and from heightened expectations that the United States and its allied consumer nations would release oil reserves.

The U.S. Commodity Futures Trading Commission said it was looking into the drop in prices and checking with exchange operators CME Group and Intercontinental Exchange .

The White House on Tuesday again said that the United States was monitoring the situation and that all options remain on the table, including a release of strategic oil reserves.

This week's reports on U.S. commercial oil inventories are expected to show crude stocks rose slightly due to restart of production and refineries that were shut by Hurricane Isaac.

ECONOMIC CONCERNS

A stronger dollar <.dxy> on Tuesday also weighed on oil prices, as the euro fell against the U.S. currency as uncertainty about whether or not debt-stressed Spain will request a bailout.

A strengthened U.S. currency can put pressure on dollar-denominated commodities such as oil.

In addition to weak U.S. growth and Europe's debt crisis, No. 2 oil consumer China has sparked concern as the country tries to keep economic growth on track and deal with disputes with neighbors.

China posted a monthly capital outflow in August for the third time this year, likely prompted by investors pulling funds from the country in the face of slowing growth and rapidly deteriorating corporate profits.

Anti-Japan protests continued across China on Tuesday, escalating a maritime dispute which has forced major Japanese brand-name firms to suspend business there.

The center of the dispute between the two countries is over an uninhabited group of islands in the East China Sea.

(Additional reporting by Alex Lawler in London and Luke Pachymuthu in Singapore; Editing by Sofina Mirza-Reid and Marguerita Choy)

Source: http://news.yahoo.com/rapid-plunge-oil-futures-leaves-traders-guessing-001012093--finance.html

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