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Oil drops toward $60 on dollar strength and US supply concerns

Feb 22 2018 12:10
Heesu Lee, Bloomberg

Shanghai - Oil slid back toward $60, dragged down with other commodities by a stronger dollar on the prospect of accelerating US interest rate hikes and on concern over American crude supplies.

New York futures fell as much as 1.5% after closing lower on Wednesday for the first time in about a week. Investors are shunning risk assets from equities to industrial metals as they choose to focus on the possibility that US interest rate increases will speed up after an upbeat growth outlook from the Federal Reserve.

Meanwhile, the nation’s crude stockpiles are forecast to have expanded last week.

A stronger greenback typically reduces the allure of commodities priced in the currency, threatening an oil rally that began in June on expectations for robust demand as well as output curbs by OPEC and allies such as Russia.

Fears are also emerging over surging US shale production and stockpiles, which could undermine efforts by the Organisation of Petroleum Exporting Countries and its partners to trim a global glut.

“While oil prices are reflecting the hawkish Fed minutes that’s currently giving a lift to the US dollar, the impact won’t last too long,”  Will Yun, a commodities analyst at Hyundai Futures, said by phone in Seoul. “The market should worry more about surging American crude output, which will have a stronger influence on prices in the longer term.”

West Texas Intermediate for April delivery fell as much as 93 cents to $60.75 a barrel on the New York Mercantile Exchange and traded at $61.03 at 09:12. The contract lost 11c to close at $61.68 on Wednesday. Total volume traded was about 14% below the 100-day average.

Brent for April settlement was down 57c at $64.85 a barrel on the London-based ICE Futures Europe exchange. Prices gained 17c to close at $65.42 on Wednesday. The global benchmark crude traded at a $3.80 premium to WTI.

The Bloomberg Dollar Spot Index, a gauge of the currency against 10 major peers, is up for a fifth consecutive day, the longest gaining streak since December, while the Bloomberg Commodity Index, which measures returns on 22 basic resources from crude to copper, fell 0.7%.

In equities, energy stocks were among the worst performers on an index for Asian shares, with PetroChina Co. dropping 1.6 percent in Hong Kong, South Korea’s S-Oil sliding 3% in Seoul and Inpex in Japan falling 1.7%.

Investors will also be watching US inventory data from the Energy Information Administration due on Thursday.

Nationwide stockpiles are forecast to have risen by 2.9 million barrels last week. By contrast, the American Petroleum Institute was said to report they fell by 907 000 barrels.

Oil-market news:

• Explorers are once again testing the waters in their search for oil, according to Transocean, the world’s biggest offshore rig contractor by market value.

• Texas shale driller Parsle Energy told investors on Wednesday that it won’t explore outside of counties where it’s already got oil wells this year.

• Gasoline futures slipped 0.6% to $1.7472 a gallon, after adding 0.4% on Wednesday.

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commodities  |  markets  |  oil
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