Oil prices dived 3 percent Thursday as a resurgent dollar erased gains from the past two sessions, setting the market up for its first weekly loss in five.
Traders and investors also returned their focus to the oversupply in crude and gasoline after Wednesday’s euphoria over the first U.S. crude drawdown in months.
The dollar, on a downtrend since the start of May, jumped on optimism that Friday’s U.S. employment report for April would show strength after upbeat weekly jobless claims. A stronger dollar makes raw materials less affordable for holders of the euro and other currencies.
“The dollar is definitely the driver in today’s tumble, though people are also taking stock of the market’s fundamentals and taking some profit after the incredible month of gains we’ve had,” said Phil Flynn, analyst at the Price Futures Group in Chicago.
Stronger-than-expected demand growth and a slowdown in U.S. crude supply have boosted oil prices by 50 percent from a six-year low hit in January. For the week, Brent was headed down 1.6 percent, for its weekly loss since April 30.
In Thursday’s session, North Sea Brent futures were down $2.50 at $65.27 a barrel by 2:15 p.m. EDT.
U.S. crude futures fell $2.30 to $58.63 a barrel.
Gasoline futures were down 50 cents for their biggest loss in a month, trading below $1.99 a barrel.
U.S. crude inventories fell almost 4 million barrels last week, their first weekly decline since January, government data showed on Wednesday. But crude stockpiles still stood at a discouragingly-high 487 million barrels. While weekly demand for gasoline was higher, stocks of the fuel also rose despite the approach of the peak U.S. driving season. [EIA/S]
“There is some disappointment out there that the fundamentals for gasoline and oil products aren’t improving as quickly as some people would like, to provide support for the broader rally in crude that we’ve been seeing,” said Carl Larry, director of business Development for oil and gas at Frost & Sullivan.
Physical markets, however, are showing a weaker underbelly, crude traders said, pointing to tens of millions of West African, Azeri and North Sea barrels struggling to find buyers.
The world’s biggest crude exporters will group in Vienna next month for a meeting of the Organization of the Petroleum Exporting Countries.
A senior OPEC delegate said the group will likely stick to its November strategy of retaining output to defend market share despite analysts saying sharp output cuts are needed to boost oil’s fundamentals.
Source: Reuters
