Oil prices edge lower, pushed down by stronger dollar
London (May 18) Oil prices ticked lower on Wednesday pushed down by a stronger dollar as investors awaited key U.S. supply data.
International Brent crude remains near the $50 a barrel mark after a multi-week rally as outages in Africa and Canada and production declines outside of the Middle East region fuelled expectations of a tighter supply.
Brent fell 0.5% to $49.05 a barrel on London’s ICE Futures exchange LCON6, -0.34% On the New York Mercantile Exchange, West Texas Intermediate futures CLM6, +0.02% were trading down 0.3% at $48.19 a barrel.
A stronger dollar ahead of the release of the latest minutes from the U.S. Federal Reserve pushed oil prices down on Wednesday. The Wall Street Journal Dollar Index BUXX, +0.27% , which tracks the greenback against a basket of other currencies, rose 0.4%. As oil is priced in dollars, it becomes more expensive for holders of other currencies as the dollar appreciates.
“[Oil prices] kept dancing around the $49-level… as markets are eying the latest oil inventory report this afternoon,” said Michael Poulsen, oil analyst at Global Risk Management.
Analysts surveyed by The Wall Street Journal expect the U.S. government’s oil inventory report for last week to show a decrease of 2.4 million barrels. Data by the American Petroleum Institute, an industry group, released late on Tuesday showed a decline of 1.1 million barrels for last week.
Read: Oil prices rise after API data show U.S. crude supply down 1.1 million barrels
It would be the second weekly decline in a row after a nearly unrelenting stream of inventory additions had put stockpiles at a record high.
Meanwhile, production disruptions around the globe continue to be a driver for oil prices. Reports on Tuesday that the Canadian forest fires forced more oil-site evacuations were a bullish signal for traders, threatening to delay the return of at least one million barrels a day of Canadian oil-sands production to the market.
“The Canadian wildfire situation has taken a turn for the worse with oil sands operations facing a bigger threat than they did a week ago,” said David Hufton of oil brokerage PVM.
Continuing military attacks on oil infrastructures in Nigeria and instability in Libya have also curtailed the countries’ oil operations. Meanwhile, output from heavyweight Latin American oil producers is likely to slip 2.4% on-year in 2016 by 250,000 barrels a day due to scant investment, said BMI Research.
All these factors underpin the upbeat views by International Energy Agency that global oil is entering a phase of rebalancing. Goldman Sachs said the market has already flipped into a deficit.
Read: Don’t believe the bullish Goldman headlines on oil
Still, not all market watchers are optimistic about the sustainability of the rally.
Tim Evans, an energy analyst at Citi Futures, pointed out total production from Organization of the Petroleum Exporting Countries has increased in April and the uptrend is likely to continue in May.
“With production from Kuwait likely rebounding from the April rate, some further increase from Iran, and Saudi Arabia having at least the potential to produce some additional barrels in the weeks ahead, we see a clear possibility that OPEC production for May could be higher still,” he said.
Nymex reformulated gasoline blendstock RBM6, -0.10% — the benchmark gasoline contract — fell 0.3% to $1.63 a gallon. ICE gasoil for June changed hands at $435 a metric ton, down $2 from the previous settlement.
Source: MarketWatch
