Oil hits three-week low amid heightened supply, dollar strength
NEW YORK (Bloomberg) -- Crude spiraled to the lowest level in three weeks as rising U.S. supply and dollar strength eclipsed bullish demand outlooks.
Futures in New York tumbled 1.7% Thursday. While Goldman Sachs Group Inc. forecasted strong global consumption growth, crude production and stockpiles in the U.S. climbed higher in the latest inventory report. A strengthening dollar also pushed crude lower.
“If you look back at the report and look back at sentiment, it’s getting hard for these bullish, speculative positions to hang on,” Rob Haworth, who helps oversee $151 billion in assets at U.S. Bank Wealth Management in Seattle, said by telephone. Speculators “are coming around to the idea that this may not be a runaway bull market yet, even though supply and demand are a little more in balance,” he said.
The Organization of Petroleum Exporting Countries and its partners including Russia continue to trim output as promised. OPEC shipments will fall by 230,000 bopd in the four weeks to March 24, according to tanker-tracker Oil Movements. Saudi Minister of Energy and Industry Khalid Al-Falih said in a Bloomberg Television interview that the deal will evolve in 2019 and the group will do what it needs to in order to preserve oil market stability.
Yet, worries about growing U.S. shale output as West Texas Intermediate crude futures linger in the $60s puts a limit on prices rallying higher. Energy Information Administration data released Wednesday showed weekly nationwide crude output climbed to a fresh record last week, while crude inventories rose to the highest since December. Reports that data-provider Genscape Inc. posted a rise in inventories at the Cushing, Oklahoma storage hub last week also added to downward pressure.
Weakening backwardation
West Texas Intermediate for April delivery slid $1.03 to settle at $60.12/bbl on the New York Mercantile Exchange. The prompt WTI futures spread closed at a premium of 6c, the smallest in two weeks, as backwardation -- where front-month futures trade higher than later-dated contracts -- weakens.
“The front spread is almost looking like it wants to go back to contango,” Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors LLC, said. Rising U.S. crude production coupled with weaker seasonal demand is weighing on crude prices, he said.
Brent for May settlement slid 73 cents to settle at $63.61/bbl on the London-based ICE Futures Europe Exchange. The global benchmark traded at a $3.55 premium to May WTI.
The Bloomberg Dollar Spot Index climbed as much as 0.6%. A stronger U.S. currency reduces the appeal of dollar-denominated raw materials as an investment, pushing crude lower.
“Th dollar strength is going to be a headwind for crude oil,” Zahir said.
Other oil-market news. Gasoline futures dropped 2.2% to settle at $1.8677 a gallon, while diesel futures closed 0.8 percent lower at $1.8591 a gallon. The Department of Energy announced a sale of up to 7 MMbbl of sweet crude from the Strategic Petroleum Reserve, according to a notice of sale. Hess Corp., facing pressure from activist investor Elliott Management Corp., tripled share buybacks to $1.5 billion and said it is reviewing its fracking techniques and costs. Rate hike talk and potential trade tariffs have started to haunt the oil market once again, but the demand outlook is still positive, according to Energy Aspects Ltd.
