Crude falls below $27 as Dow plunges 322 points

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HOUSTON — U.S. crude prices dropped below $27 a barrel for the first time since 2003 on Wednesday after another slide in Chinese stocks as investors worried the world’s second-largest consumer of oil has entered a protracted manufacturing slowdown.

The 6.7 percent plunge in oil prices dovetailed pain in the stock market: the Dow dropped 322 points, or 2 percent, as of 2:55 p.m. ET. The S&P 500 lost 31.9 points, or 1.7 percent.

Major oil companies tumbled as well. Exxon Mobil fell nearly 5 percent, or $3.80, to $72.60. Chevron slipped a little more than 6 percent, or $5.04, to $76.47.

The International Energy Agency this week had said China, Brazil, Russia appeared to be weakening as global oil demand growth declined 52 percent from a five-year high in the third quarter to the fourth quarter in 2015.

“There’s no catalyst right now to drive prices higher,” said R.T. Dukes, an analyst at Wood Mackenzie in Houston. “Whether its from Iran or others, you have an oversupplied environment. Everything that’s visible is heading in the wrong direction.”

Global crude stockpiles could rise by 285 million barrels this year, the IEA said, as the market continues to push massive inventories through an oil complex that’s having difficulty keeping up. Earlier this month, the World Bank said that in 2015 emerging economies slowed to their most sluggish growth in 14 years, and China and others could put a ceiling on oil demand growth in 2016.

“For China, for so long the engine of global demand growth, we expect demand to increase by 350,000 barrels a day, below the recent trend level,” the IEA said. China’s major stock exchange, the Shanghai Composite, fell 1 percent in Asian trading.

U.S. crude fell $1.91 on Wednesday to $26.55 a barrel on the New York Mercantile Exchange, the lowest settlement since May 2003. Brent, the global benchmark, fell $1.12 to $27.64 a barrel on the ICE Futures Europe.

Dukes said domestic crude production will drop off sharply because of the recent downturn in prices but the reduction in output won’t be seen for another few months because of lagging data and drilling activity.

Wood Mackenzie expects about 100 more rigs to be sidelined in coming months. Each rig, the group estimates, is tied to a little less than 100 jobs. Deactivating drilling rigs once affected 100 to 150 jobs but as the industry has become leaner, so has the number of job cuts that follow a rig closure, Dukes said.

The U.S. oil industry can grow when crude prices range from $50 to $60 a barrel. But shale well profitability ends around current prices.

“There’s no play or area that works at $30 oil,” Dukes said. “If there were great plays at $30 oil, people would still be raising money. In the U.S., you need higher prices.”

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About The Author

Collin Eaton joined the Houston Chronicle's team of energy reporters in 2013, after covering the financial industry for another publication. He writes mainly about U.S. oil companies and developments in international oil markets.