By Gene Ramos and Matthew Robinson
NEW YORK | Wed May 11, 2011 5:07pm EDT
(Reuters) - Oil prices tumbled over 4 percent on Wednesday after an unexpected rise in gasoline stocks amid slowing demand sent prices into a tailspin, triggering a five-minute halt in trade and fueling the second big commodities sell-off in a week.
The momentum of gasoline's biggest fall in over two years washed across the oil complex and hit everything from silver to copper to the euro. Early losses stemming from weak Chinese industrial output data and gains in the dollar tied to Greek debt woes spiraled through the day, setting off sell-stops.
The abrupt tumble drove oil volatility to its highest close since mid-March as traders struggled to figure out where markets might find equilibrium after diving more than $13 a barrel from their peak just last week.
"The gasoline market continues to run crazy. Last week's steep slide has increased volatility in the market, and we are still responding skittishly to that," said Gene McGillian, analyst for Tradition Energy in Stamford, Connecticut.
"The underlying fundamentals haven't changed enough to see this kind of price change. The market is nervous."
Unlike last Thursday's precipitous fall concentrated in the crude oil market, activity focused on gasoline, which fell after the first rise in stocks in 12 weeks and as traders reckoned it less likely that flooding would affect refineries bordering the Mississippi River.
Trading of crude and refined products halted after gasoline futures dropped 25 cents, the limit down, tripping a five-minute circuit breaker aimed to calm feverish markets. It was the first time the breakers had been hit since the financial crisis in September 2008.
Gasoline fell further after trade resumed, breaking technical levels. Total volume reached a record 240,000 lots.
Brent crude settled down $5.06 to $112.57 a barrel. U.S. crude fell $5.67 to $98.21 a barrel, after touching as low as $97.50 a barrel.
U.S. gasoline futures suffered the biggest daily drop since September 2008, with the June contract settling at $3.1228 a gallon, losing 25.69 cents, or 7.6 percent. It was the biggest loss in dollar terms since September 2008.
Rising fuel costs this year have fueled calls by U.S. lawmakers to cut down on speculation in oil markets.
Those calls grew louder on Wednesday, even as prices fell, with a group of 17 U.S. senators calling on regulators to immediately crack down on "rampant oil speculation" by hastening planned rules to limit concentration.