Dollar’s strengthening against the euro dims investors’ demand for dollar-priced assets to hedge against inflation.
Crude oil fell for a second day as the dollar strengthened against the euro, dimming investors’ demand for dollar-priced assets to hedge against inflation.
Oil dropped as much as 1.7 per cent as the US currency climbed for the first time in five days. Inventories of crude oil, gasoline and distillate fuel are higher than average, according to the Energy Department.
“The rally in energy is looking a little long in the tooth,” said John Kilduff, senior vice-president of energy at MF Global in New York. “There isn’t any economic data to give the market any strength. The dollar is a bit stronger today, which is weighing on things.”
Crude oil for October delivery fell 43 cents, or 0.6 per cent, to settle at $72.04 a barrel at 2:46 pm on the New York Mercantile Exchange. Prices are up 62 per cent this year.
Futures increased 4 per cent this week, a second straight gain, as the stock market climbed and data showed an expansion in US housing starts and industrial capacity utilisation.
The dollar traded at $1.4724 per euro from $1.4741 on Thursday, when it touched $1.4767, the weakest level since September 25, 2008. The Standard & Poor’s 500 Index rose 0.4 per cent on Friday to 1,069.92 at 3:13 pm in New York and the Dow Jones Industrial Average climbed 0.6 per cent to 9,838.71.
“It will take a long while, six months or a year, to work off the inventory overhang,” said Adam Sieminski, the chief energy economist at Deutsche Bank AG in Washington. “Some analysts may expect a quick return to triple digits but that’s not likely unless the dollar dips below 1.6 to the euro or there’s a huge geopolitical event in a country like Iraq or Iran that affects production.”
US Stockpiles
Stockpiles of crude oil dropped 4.73 million barrels to 332.8 million last week, the Energy Department reported on September 16. The decline left inventories 7.9 per cent above the five-year average for the week.
Supplies of distillate fuel, which include heating oil and diesel, climbed 2.24 million barrels to 167.8 million, the highest since January 1983 and 24 per cent more than the five- year average. Gasoline inventories rose 547,000 barrels to 207.7 million last week, 4 per cent greater than average, the department said.
Gasoline for October delivery declined 1.88 cents, or 1 per cent, to end the session at $1.8324 a gallon in New York. Heating oil for October delivery slipped 1.3 cents, or 0.7 per cent, to settle at $1.8279.
“As long as the stock market is rising and the dollar is weak the oil market will be supported,” Sieminski said. “The fundamentals don’t matter as much as would normally be the case. Inventories are ample, we have lots of refining capacity available and Opec has millions of barrels of spare capacity.”
Opec Capacity
The Organization of Petroleum Exporting Countries agreed at its September 9 meeting in Vienna to maintain production targets at 24.845 million barrels a day. The 11 members bound by quotas pumped 26.055 million barrels a day in August, according to a Bloomberg New survey. Opec members were left with 6.055 million barrels a day of spare capacity, the survey showed.
“This market looks very over-valued based on supply and demand,” said Peter Beutel, president of trading adviser Cameron Hanover Inc. in New Canaan, Connecticut. “It’s become more of a playground for investment banks in recent years. The greater their involvement the more it is influenced by equities and the dollar.”
Tens of thousands of Iranian opposition supporters protested the re-election of President Mahmoud Ahmadinejad as he again attacked Israel at the annual state-organized Quds Day rally honoring the Palestinian cause. Iran is Opec’s second-biggest oil producer.
Iranian Situation
“We are keeping an eye on the situation in Iran,” Kilduff said. “This geopolitical factor will increase in importance as we go into the fall.”
The US will dispatch its undersecretary of state for political affairs, William Burns, to the October 1 meeting with US allies and Iran about the Persian Gulf country’s nuclear program. Iran is under three sets of United Nations sanctions for refusing to suspend uranium enrichment.
Oil futures may fall next week as fuel stockpiles rise, a Bloomberg News survey showed. Sixteen of 42 analysts surveyed, or 38 per cent, said futures will drop through September 25. Fourteen respondents, or 33 per cent, forecast that the market will rise and 12 said prices will be little changed.
Brent crude oil for November settlement declined 23 cents, or 0.3 per cent, to end the session at $71.32 a barrel on the London-based ICE Futures Europe exchange.
Oil volume in electronic trading on the Nymex was 344,665 contracts as of 2:56 pm in New York on Friday. Volume totalled 527,242 contracts Thursday, 2.4 per cent lower than the average over the past three months. Open interest was 1.2 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.
