By The Associated Press
NEW YORK (AP) - Oil had its biggest one-day price drop since November on Thursday, a day after the U.S. Federal Reserve said it could end its economic stimulus program sooner than many traders expected.
U.S. benchmark oil for July delivery was down $2.88, or 2.9 percent, to $95.60 a barrel in midday trading on the New York Mercantile Exchange.
On Wednesday Fed chairman Ben Bernanke suggested that he was optimistic about the U.S. economy - and that the Fed might start scaling back its massive $85 billion-a-month bond-buying program this year if conditions continue to improve. The Fed could end the program by the middle of next year, Bernanke said.
That surprised some in the oil markets, who thought the central bank would need to support the U.S. economy for a longer period of time. Oil rose to a year high of $99.01 Wednesday, before Bernanke spoke.
Bernanke's statement drove stock markets sharply lower Thursday while boosting the value of the dollar. Oil traders look to the stock market as a measure of confidence in the U.S. economy, while a strong dollar makes oil more expensive for holders of other currencies. So both developments put pressure on futures prices.
The fundamental picture was weak as well. U.S. crude supplies are at 394.1 million barrels, close to the record set three weeks ago. Meanwhile, U.S. gasoline demand is still weaker than a year ago. And data Thursday showed continuing contraction in China's manufacturing sector.
"Bulls drove the oil market toward the high of the year despite a glut of oil supply and signs of weakening global demand on the unfettered belief that the Fed would not dare take away that stimulus punch. Instead they got a Hawaiian Punch," wrote Phil Flynn, senior market analyst at PRICE Futures Group, in a note to clients.
Still, analysts don't expect an all-out rout. They said the slump in oil prices could be just a short-term response to a change in U.S. central bank policy. Fears of an escalation of the civil war in Syria should support oil around the $94 level, said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, in a daily report.
Brent crude, a benchmark for many international oil varieties, was down $3.18 to $102.94 a barrel on the ICE Futures exchange in London.
In other energy futures trading on the Nymex:
- Wholesale gasoline was down 9 cents at $2.80 a gallon.
- Heating oil fell 9 cents to $2.89 per gallon.
- Natural gas retreated by 8 cents to $3.88 per 1,000 cubic feet.
Pablo Gorondi in Budapest and Pamela Sampson in Bangkok contributed to this report.
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