Oil Falls as Monetary Policy and China Hit Market

The price of oil slid again Friday, on the prospect of a tighter supply of cash and slower growth in China.

U.S. benchmark crude fell $1.71, to $93.69 in New York. The decline extends a sharp plunge that saw U.S. oil fall from nearly $100 per barrel in morning trading Thursday.

Brent crude, which is used to price oil used by many U.S. refineries to make gasoline, fell $1.24 to $100.91.

The average retail price of gasoline fell a penny to $3.59 per gallon, according to AAA, OPIS and Wright Express. Gasoline prices have fallen slowly over the past week, but remain 12 cents higher than last year.

Crude had reached its highest level of the year by Thursday, with the war in Syria threatening wider violence across the Middle East, as well as expectations that the rebounding global economy would increase energy demand.

Economic policies that have increased the supply of cash in the market have also made commodities such as oil attractive.

But on Thursday, the U.S. Federal Reserve said it could start tapering its bond purchases this year, which would reduce the amount of cash pushed into the market. That would make it more expensive for traders to invest in oil.

New reports of a lending crunch in China, the world’s second-largest economy, and weak manufacturing data there may also ease energy demand.

The sudden drop in the price of oil revealed how susceptible the oil market is to external influences outside of supply and demand. “There has after all been no change in the fundamentals since the beginning of the month,” Commerzbank in Frankfurt noted in a published report.

Analysts do not expect oil prices to decline much further, however. Geopolitical risks remain, and OPEC has signaled it will lower oil production in the coming months, which would reduce global supplies and prevent a further drop in prices.

“The geopolitical premium must not be forgotten, and may not remain muted for long,” said analysts at Credit Agricole CIB in Hong Kong.

In other energy futures trading on the Nymex:

• Wholesale gasoline fell 3 cents to $2.75 a gallon.
• Heating oil fell 3 cents to $2.84 per gallon.
• Natural gas fell 11 cents to $3.77 per 1,000 cubic feet.

Meanwhile, gold and other metals recovered Friday, a day after taking a plunge on news that the Federal Reserve was contemplating an end to its bond-buying program.

Gold for August delivery rose $5.80, or 0.5 percent, to settle at $1,292 an ounce. It had plunged $88, or 6 percent, the day before, hitting its lowest point since September 2010.

The drop came after the Federal Reserve said it might start to slow its bond purchases later this year, provided the economy continues to recover. That diminished the appeal of gold as an alternative investment, by strengthening the dollar and making it less likely the U.S. would see inflation.

Both outcomes seemed less likely after the Fed laid out a timetable for when it might curtail its bond purchases, which would put upward pressure on U.S. interest rates. Traders had feared the Fed’s economic stimulus would weaken the dollar and cause inflation in the U.S.

July silver rose 13.60 cents, or 0.7 percent, to $19.959 an ounce. Silver had plunged 8 percent on Thursday.

Copper for July delivery rose 3.35 cents, or 1.1 percent, to $3.0955 a pound. July platinum rose $5.70, or 0.4 percent, to $1,369.50 an ounce. September palladium rose $9.65, or 1.5 percent, to $674.75 an ounce.