Oil Futures Lose More Than 2%

The June delivery contract, which expired Thursday, lost $1.86, to settle at $68.01. The more actively traded July contract shed $1.68, to settle at $70.80 a barrel
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) -- Crude futures got pummeled alongside equities Thursday, slumping to levels not seen since last summer as continued insecurity about Europe's sovereign debt crisis sapped confidence in the global economic recovery.

The June delivery contract, which expired Thursday, fell as low as $64.24, before settling down by $1.86, or 2.7%, at $68.01 a barrel. The more heavily traded July contract also slid, hitting a session low of $68.85 a barrel before settling 2.3% lower, shedding $1.68, at $70.80 a barrel.

Phil Flynn, energy analyst at PFGBest, said oil's biggest cue was coming out of Europe. Rising fears about mounting fiscal problems in the eurozone, and the perceived inability of leaders to corral contagion risk, was raising fears that economic growth could slow in the area. Such an economic hiccup could then ripple out and cut into the global economic recovery, causing slowdowns in China, the U.S., and others, which would only further weaken demand for crude.

Weakness in the euro and strength in the greenback, in light of the uncertainty, was only adding to the pressure in Thursday's trading.

"This is a lesson in how not to restore confidence in a market," Flynn said. "Obviously, the governments in Europe are making it worse with all the handwringing and focus on speculators. But this is not giving more confidence. It's giving less."

"This market is now in a deflationary trend," he continued. "The commodities are worried about a double-dip recession, about slowing economic growth. They're worried about the worst case scenario."

Not helping matters, major U.S. indices each finished 4% lower Thursday as

initial jobless claims spiked last week, indicating lingering sluggishness in the labor market and adding to feelings of economic uncertainty. Crude futures also got little relief from

fundamental data released Wednesday showing buildups in supply levels, particularly at the much-watched Cushing, Okla., delivery point.

"There's not a lot to hang your hat on today," Flynn added. "I think people realize the unbridled economic optimism was a little over done."

Oil-related stocks suffered in Thursday's broad market selloff. The NYSE Arca Oil index shed 3.8% and the Philadelphia Oil Service Sector index plunged 5.8%. With all 30 stocks on the

Dow Jones Industrial Average

finishing in the red, components

Exxon Mobil

(XOM) - Get Report



(CVX) - Get Report

lost 3.4% and 3.9%, respectively.

Exxon Mobil Dan Dicker: Buy It Now

The government also reported natural gas inventory levels earlier Thursday that largely rose along the lower end of expectations. According to an Energy Information Administration assessment released this morning, underground storage levels in the lower 48 states saw a net injection of 76 billion cubic feet for the week ending May 14. A survey from Platts showed analysts were expecting a rise between 76 to 80 billion cubic feet.

But with storage levels now at 2.165 trillion cubic feet, current supply is standing 3.5% higher than levels from a year ago and 16.6% higher than the five-year average.

The June natural gas contract gave up 5 cents, or 1.3%, to settle at $4.11 per million British thermal units.

Elsewhere on the Nymex, July heating oil lost nearly 5 cents, or 2.3%, to settle at $1.92 a gallon, and July gasoline dropped 5 cents, or 2.5%, to settle at $1.96 a gallon.

--Written by Sung Moss and Melinda Peer in New York