NEW YORK (TheStreet) -- Oil prices collapsed to the lowest level in the past year on Monday as domestic economic growth concerns triggered by a historic downgrade of U.S. credit ratings by Standard & Poor's thwarted buying interest.
The September Brent crude oil contract tumbled $6.47 to $102.90 a barrel, while West Texas Intermediate (WTI) light sweet crude oil for September delivery tumbled $5.57 to settle at $81.31. The WTI contract had earlier hit a year-low of $80.17 as the U.S. dollar index ticked up 0.1% to $74.68.
"After Friday night's U.S. credit rating downgrade by S&P, financial markets today are receiving an absolute drubbing, as the removal of AAA status from the world's largest economy highlights the extent of the global economic frailties that exist," said Summit Energy analyst Matt Smith. "Given the relationship between economic growth and oil prices, WTI crude is correspondingly being walloped this morning, down to a level not seen since last November."Beyond the U.S., economic frailties also continue to haunt the European markets, with the European Central Bank now purchasing Spanish and Italian government bonds in efforts to prevent a financial crisis from spreading to the Eurozone's third and fourth largest economies. Still, SEB chief economist Robert Bergqvist said Monday's oil price plunge could have been far worse, had the markets not prepared for the S&P downgrade for months now. The markets, he said, are in the red, "but not shockingly red" -- and the consequences of the downgrade "should not be exaggerated." Natural gas futures for September delivery had also hit a year low Monday at $3.855 per million British thermal units, as supplies remained abundant in the United States. The contract settled flat at $3.935. "Natural gas production is too high for storage levels to drop appreciably in comparison to previous years here, unless we get a storm like Katrina, Rita, Gustav or Ike, or sustained hot temperatures like the ones in Texas right now -- in the Great Lakes and Northeast," Cameron Hanover analyst said. "There is that much output." However, the analysts point out that prices could rally on oversold pressures, given that natural gas is cheap at under $4. Shares of oil and gas stocks closed in negative territory. EOG Resources (EOG) stumbled 7.5% to end at $88.79; Devon Energy (DVN) lost 6.4% to $65.43; Chevron (CVX) plunged 7.4% to $90.38; Newfield Exploration (NFX) tumbled 11% to $49.44; Hess (HES) retreated 10.5% to $53.60; Occidental Petroleum (OXY) lost 8.8% to $79.70; and Cnooc (CEO) dropped 8.9% to $181.67. -- Written by Andrea Tse in New York.
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