Crude oil drops most in three weeks as dollar gains against euro
Sunday, 21 March 2010
LONDON, March 20 (Bloomberg): Crude oil tumbled the most in three weeks as the dollar strengthened against the euro, curbing the appeal of commodities as an alternative investment.
Oil retreated 1.9 per cent as speculation that Greece may fail to secure financial assistance from the European Union weakened the euro, which is heading for its biggest weekly decline against the dollar since January. Prices also dropped after failing to sustain a move above $83 a barrel this week.
"The market looks like it's tracking the dollar play," said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. "It's also retreating from the $83 level because fuel demand dropped below the five-year average."
Crude oil for April delivery fell $1.52 to settle at $80.68 a barrel on the New York Mercantile Exchange, the biggest decline since Feb. 25. Oil lost 0.7 per cent this week, the most since Feb. 5.
Total US fuel demand dropped the most since November in the week ended March 12, the Energy Department said two days ago. Consumption decreased by 4.2 per cent to 18.8 million barrels a day, 7.8 per cent below the five-year average for the second week in March.
The dollar rose 0.6 per cent to $1.3532 against the euro at 3:42 p.m. in New York, compared with $1.3608 yesterday. It's poised to gain 1.7 per cent this week, the biggest increase since the week ended Jan. 29.
The Reuters/Jefferies CRB Index of 19 commodities declined 1.1 per cent to 272.63, the steepest drop since Feb. 25. Thirteen of the commodities traded lower.
"All signs point to the dollar," said Hamza Khan, an analyst with consultant Schork Group Inc. in Villanova, Pennsylvania. "Oil was trending higher and ignoring the dollar recently, but that's changed. The bears are coming back into the market. On top of that the equity markets are down today."
The Standard & Poor's 500 Index lost 0.8 per cent to 1,156.99 as of 3:45 p.m., its biggest decline since Feb. 23.
Oil settled at $82.93 a barrel on March 17, the highest level since Jan. 6 when it reached $83.18. Crude has risen 56 per cent in the past year.
"This market failed miserably to take out $83," said Phil Flynn, vice president of research at PFGBest in Chicago. "Are you really in a strong bull market when you can't take out the highs from January? We're getting to the point where the market is realizing maybe we're caught in a trading range." Oil prices have remained within a $68- to $84-a-barrel range since October.
Oil rose earlier this week after Standard & Poor's Ratings Services affirmed its sovereign-credit ratings on Greece, strengthening the euro and weakening the dollar amid hopes of a European bailout.
Greek Prime Minister George Papandreou said yesterday he may turn to the International Monetary Fund unless EU leaders agree to set up a lending facility at a March 25-26 summit. French President Nicholas Sarkozy and European Central Bank President Jean-Claude Trichet say that would show the EU can't solve its own crises.
"The Greek story is coming back," said Francisco Blanch, head of global commodity research at Bank of America-Merrill Lynch in London. "Further crises are going to be inevitable in other countries because of the amount of debt out there."
Crude's decline accelerated after India, which has the second-largest emerging-market oil demand after China, raised interest rates for the first time since July 2008.
The Reserve Bank of India increased the benchmark reverse repurchase rate to 3.5 per cent from a record low of 3.25 per cent, saying controlling price gains has become "imperative" after inflation accelerated to a 16-month high.
"The emerging markets are the only place where demand is going up," said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. "Half of it is in India and China. This could certainly raise questions about how strong growth in India and China can be."
The International Energy Agency raised its forecast for 2010 oil demand last week, saying fuel consumption in Asia was increasing more than expected. The IEA boosted its outlook by 70,000 barrels, or 1.8 per cent, to 86.6 million barrels a day.
Brent crude for May settlement declined $1.60, or 2 per cent, to $79.88 a barrel on the London-based ICE Futures Europe exchange.
Oil retreated 1.9 per cent as speculation that Greece may fail to secure financial assistance from the European Union weakened the euro, which is heading for its biggest weekly decline against the dollar since January. Prices also dropped after failing to sustain a move above $83 a barrel this week.
"The market looks like it's tracking the dollar play," said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. "It's also retreating from the $83 level because fuel demand dropped below the five-year average."
Crude oil for April delivery fell $1.52 to settle at $80.68 a barrel on the New York Mercantile Exchange, the biggest decline since Feb. 25. Oil lost 0.7 per cent this week, the most since Feb. 5.
Total US fuel demand dropped the most since November in the week ended March 12, the Energy Department said two days ago. Consumption decreased by 4.2 per cent to 18.8 million barrels a day, 7.8 per cent below the five-year average for the second week in March.
The dollar rose 0.6 per cent to $1.3532 against the euro at 3:42 p.m. in New York, compared with $1.3608 yesterday. It's poised to gain 1.7 per cent this week, the biggest increase since the week ended Jan. 29.
The Reuters/Jefferies CRB Index of 19 commodities declined 1.1 per cent to 272.63, the steepest drop since Feb. 25. Thirteen of the commodities traded lower.
"All signs point to the dollar," said Hamza Khan, an analyst with consultant Schork Group Inc. in Villanova, Pennsylvania. "Oil was trending higher and ignoring the dollar recently, but that's changed. The bears are coming back into the market. On top of that the equity markets are down today."
The Standard & Poor's 500 Index lost 0.8 per cent to 1,156.99 as of 3:45 p.m., its biggest decline since Feb. 23.
Oil settled at $82.93 a barrel on March 17, the highest level since Jan. 6 when it reached $83.18. Crude has risen 56 per cent in the past year.
"This market failed miserably to take out $83," said Phil Flynn, vice president of research at PFGBest in Chicago. "Are you really in a strong bull market when you can't take out the highs from January? We're getting to the point where the market is realizing maybe we're caught in a trading range." Oil prices have remained within a $68- to $84-a-barrel range since October.
Oil rose earlier this week after Standard & Poor's Ratings Services affirmed its sovereign-credit ratings on Greece, strengthening the euro and weakening the dollar amid hopes of a European bailout.
Greek Prime Minister George Papandreou said yesterday he may turn to the International Monetary Fund unless EU leaders agree to set up a lending facility at a March 25-26 summit. French President Nicholas Sarkozy and European Central Bank President Jean-Claude Trichet say that would show the EU can't solve its own crises.
"The Greek story is coming back," said Francisco Blanch, head of global commodity research at Bank of America-Merrill Lynch in London. "Further crises are going to be inevitable in other countries because of the amount of debt out there."
Crude's decline accelerated after India, which has the second-largest emerging-market oil demand after China, raised interest rates for the first time since July 2008.
The Reserve Bank of India increased the benchmark reverse repurchase rate to 3.5 per cent from a record low of 3.25 per cent, saying controlling price gains has become "imperative" after inflation accelerated to a 16-month high.
"The emerging markets are the only place where demand is going up," said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. "Half of it is in India and China. This could certainly raise questions about how strong growth in India and China can be."
The International Energy Agency raised its forecast for 2010 oil demand last week, saying fuel consumption in Asia was increasing more than expected. The IEA boosted its outlook by 70,000 barrels, or 1.8 per cent, to 86.6 million barrels a day.
Brent crude for May settlement declined $1.60, or 2 per cent, to $79.88 a barrel on the London-based ICE Futures Europe exchange.