Brent Crude Oil Drops Dramatically, Investors Question Supply Problem

Brent Crude Oil took a nose dive Wednesday, falling just over three percent. Brent traded at 109.380 on Thursday, an increase from Wednesday's lows. The subtle recovery could be attributed to Thursday's European Central Bank meeting and the potential Spanish bailout.

reported on Wednesday that the decline should come as no surprise after Wednesday's troubling PMI data from China's non-manufacturing sector showed a sizable decline. China, Europe and the U.S. oil needs have all decreased over the past months and show no signs of increasing in the future. As the three biggest consumers, this puts quite a bit of stress on the demand side of the equation. Many speculated that these demand worries are overshadowed by looming troubles in the Middle East. Prices saw an increase as Iran continued to develop its uranium enrichment program and continued to rise on the assumption that an embargo or war would be forthcoming. Although this assumption still proves significant, the Department of Energy has announced that crude output is at its highest level since December 1996, up 11,000 barrels per day to 6.52 million. This news out of the US shined a new light on the supply side of crude oil prices. Between the U.S. data and rising Saudi Arabian output, many are starting to believe that the trouble in Iran may not be large-scale enough to constrict supply. In the weeks to come, investors will have eyes on Spain to see the ECB make good on its promise to ease the country's debt and thus alleviate some of the doubt about future demand. Tensions in the Middle East will also play a roll, as investor perception of the tension could potentially drive prices higher.