06/20/2013 05:47 EDT | Updated 08/20/2013 05:12 EDT

Oil drops the most since November, joins in stock market rout on Fed comments, China data

NEW YORK, N.Y. - Oil was swept up in the broad sell-off in stocks and bonds Thursday as a combination of weak Chinese manufacturing data and the Federal's Reserve's shifting stance on economic stimulus rattled energy markets.

Oil had its biggest one-day price drop since November with benchmark West Texas Intermediate crude for July delivery sinking $2.84, or 2.9 per cent, to finish at US$95.40 a barrel on the New York Mercantile Exchange.

Brent crude, a benchmark for many international oil varieties, was down $3.97, or 3.7 per cent, to end at US$102.94 a barrel on the ICE Futures exchange in London.

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.

The Fed program has kept borrowing costs near historic lows for consumers and business. It has also helped boost the equities and energy markets.

Stocks and bonds sold off immediately after Bernanke's comments. Oil didn't react much because Bernanke spoke just as U.S. energy markets closed Wednesday.

Lower stocks and a stronger dollar put pressure on oil prices. Once trading opened in Asia on Thursday oil fell sharply in tandem with Asian stock markets. Bernanke's comments also gave a boost to 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.

The Dow Jones industrial average fell 354 points, or 2.3 per cent, Thursday to close at 14,758. Shares of Exxon Mobil Corp. and Chevron Corp., both Dow components, fell by more than two per cent.

The euro had slipped to US$1.3197 from $1.3274 in New York a day earlier, while the yield on the benchmark 10-year note rose to its highest level since August 2011.

Also weighing on oil prices was a survey showing a slowdown in manufacturing in China. HSBC's preliminary purchasing managers' index fell to a nine-month low of 48.3 in June, down from 49.6 in May. Numbers below 50 indicate a contraction.

With mature economies like Europe and the U.S. struggling to expand at a steady pace, China and emerging markets have accounted for most of the growth in oil demand over the past several years.

Despite Thursday's big drop, Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said most industry observers don't expect a free-fall in the price of oil.

He said fears of an escalation of the civil war in Syria should support oil around the US$94 level.

In other energy futures trading on the Nymex: wholesale gasoline closed down 10.5 cents, or 3.6 per cent, at US$2.79 a U.S. gallon (3.79 litres), heating oil fell 10 cents, or 3.4 per cent, to end at US$2.87 a gallon and natural gas retreated by nine cents, or 2.2 per cent, to finish at US$3.88 per 1,000 cubic feet.