Oil falls to two-month low amid dollar strength, ample supply
NEW YORK (Bloomberg) -- Oil closed at the lowest level in more than two months in New York as the dollar rose against its peers and global crude markets were deemed comfortably supplied despite threats to output.
Futures fell 1.3% as the dollar advanced to a six-week high, curbing the appeal of commodities as an investment. U.S. crude supplies remain ample even as government data is projected to show that nationwide stockpiles slipped for a ninth week. Oil prices briefly rose as much as 1% after Goldman Sachs Group Inc. said U.S. crude output will decline more than previously forecast and an industry report said that the pace of North Sea oil-field shutdowns would grow.
"The market rallied after the report from Goldman projecting lower U.S. output and another on how Brexit will increase the pace of North Sea shutdowns," said Bob Yawger, director of the futures division at Mizuho Securities USA in New York. "Prices soon retreated because of the dollar’s strength. It’s been very difficult, especially in the last couple of weeks, for crude to move in the same direction as the dollar."
While oil is still about 70% above the 12-year low reached in February, prices have slipped from almost $52 in early June amid signs of weaker demand growth. Though a global supply glut is shrinking as American crude output falls, the market recovery will remain volatile as U.S. drillers use the rebound to place hedges that could help them boost output, BMI Research said.
Dollar rally
West Texas Intermediate for August delivery, which expires Wednesday, fell 59 cents to close at $44.65 a barrel on the New York Mercantile Exchange. It’s the lowest settlement since May 9. Total volume traded was 20% below the 100-day average at 3:02 p.m. The more-active September contract dropped 49 cents to $45.45.
Brent for September settlement slipped 30 cents, or 0.6%, to $46.66/bbl on the London-based ICE Futures Europe exchange. The contract closed at a $1.21 premium to WTI for September delivery.
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, rose as much as 0.7% to the highest level since June 3. A stronger greenback curbs investor appetite for dollar-denominated raw materials.
"The strength of the dollar is putting a little downward pressure on commodities," said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $4.9 billion. "The best argument for commodities, and crude in particular earlier this year, was the soft dollar."
Quickening pace
The pace of North Sea oil-field shutdowns is picking up as the impact of the price slump is compounded by the uncertain investment environment created by Brexit. Projected spending on decommissioning in the British sector in the decade to 2024 has risen to 16.9 billion pounds ($22.4 billion), industry group Oil & Gas UK said. That’s 16% higher than a 10-year forecast in 2014.
U.S. production will decline by an average 370 Mbpd in 2017, Goldman Sachs analysts Damien Courvalin and Raquel Ohana wrote in e-mailed note dated July 18. That compares with a 360 Mbbl drop projected in a July 11 report.
Rebel attacks
Militants in Nigeria targeted the Warri pipeline, newspaper ThisDay reported, citing security forces it didn’t name. A spokesman for Nigerian National Petroleum Corp. said he was unable to confirm the attack immediately.
U.S. government data will probably show on Wednesday that crude stockpiles dropped by 2 MMbbl last week, according to a Bloomberg survey. The Energy Information Administration is projected to report that supplies of gasoline fell in the week ended July 15, while those of distillate fuel grew.
"We are oversupplied in products and crude as well," O’Grady said. "We will get through the overhang in supply but it won’t happen in 2016."
