NEW YORK (AP) -- 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. U.S. benchmark oil for July delivery sank $2.84, or 2.9 percent, to finish at $95.40 a barrel in New York. Gasoline futures fell more than 3 percent.
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 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 percent, Thursday to close at 14,758. Shares of ExxonMobil (NYSE: XOM ) and Chevron (NYSE: CVX ) , both Dow components, fell by more than 2 percent. The euro slipped to $1.3197 from $1.3274 in New York a day earlier. 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 (NYSE: HSBC ) 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.
"A weakening in Chinese industrial activity could easily translate to a reduced flow of products exports out of the US Gulf," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, in a daily report.
Still, Ritterbusch and most others 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 $94 level.
Brent crude, a benchmark for many international oil varieties, was down $3.97, or 3.7 percent, to end at $102.94 per barrel on the ICE Futures exchange in London.
In other energy futures trading on the Nymex:
- Wholesale gasoline was down 10.5 cents, or 3.6 percent, to finish at $2.79 a gallon.
- Heating oil fell 10 cents, or 3.4 percent, to end at $2.87 per gallon.
- Natural gas retreated by 9 cents, or 2.2 percent, to finish at $3.88 per 1,000 cubic feet.