Oil entered a bear market in New York as it headed for the biggest monthly drop in more than three years on speculation Europe’s worsening debt crisis and a slowing U.S. economy will reduce fuel demand.
Futures today are 20 percent lower than their highest settlement this year, a definition of a bear market. Prices slipped as the cost of protecting Spanish bonds against default climbed to a record yesterday and a Greek poll showed support for anti-austerity parties ahead of elections. A report yesterday showed pending U.S. home sales in April slid the most in a year. Oil peaked in February on concern that tension with Iran will disrupt global supplies.
“Prices have fallen on the pessimistic expectations of the global economic recovery,” said Ken Hasegawa, a commodity derivative sales manager at Newedge Group in Tokyo who sees New York crude falling to $75 a barrel by the third quarter. “The problem is not only in Greece, but several countries in Europe. And from a fundamental point of view, we don’t have any shortage concerns, even with the Iran embargo.”
Oil for July delivery traded at $87.65 a barrel, down 17 cents, in electronic trading on the New York Mercantile Exchange at 2:21 p.m. Sydney time. The contract slid $2.94 yesterday to $87.82, the lowest close since Oct. 21.
Crude in New York has dropped 20 percent since its peak close this year of $109.77 a barrel on Feb. 24. Prices are down 16 percent this month, set for the largest monthly drop since December 2008, and 11 percent lower this year.