Crude oil fell to a seven-month low in New York as the euro tumbled against the dollar, undermining the attraction of commodities for hedging against inflation.
Oil slipped in tandem with equities on concern that European governments are divided on how to contain financial turmoil in the wake of the sovereign debt crisis. Yesterday crude halted a six-day losing streak after stockpiles in the U.S. increased less than analysts forecast last week and supplies of distillate fuel unexpectedly declined.
“It’s currency speculation that’s driving the oil market right now,” said Robert Montefusco, a Sucden Financial broker in London. “With the euro in trouble, banks are selling any rallies in the currency and oil and metals are tracking that. At some stage, OPEC will step in to address oversupply.”
Crude oil for June delivery fell as much as $2.32, or 3.3 percent, to $67.55 in electronic trading on the New York Mercantile Exchange, the lowest price since Sept. 30. The contract, which expires today, traded at $67.63 at 1:45 p.m. London time. Brent crude oil for July settlement dropped $2.41 to $71.28 on the London-based ICE Futures Europe exchange.
The July contract in New York was down $2.43 at $70.07. The euro fell as much as 0.9 percent to $1.2308, within two cents of the four-year low it reached yesterday.
A group of 20 Democratic lawmakers in the U.S. surged the Minerals Management Service to shut down BP Plc’s Atlantis oil and gas platform in the Gulf of Mexico until regulators verify it is operating safely, Reuters reported.
In a letter to be delivered to Interior Secretary Ken Salazar today, the lawmakers argue that the explosion at the Deepwater Horizon rig that killed 11 people and led to an oil spill has raised questions over the safety of Atlantis, which pumps 200,000 barrels a day of oil, Reuters said.
“The downtrend in oil prices was a bit overdone when you look at the fundamentals, and I would expect a rebound,” said Andy Sommer, an analyst at Elektrizitaets-Gesellschaft in Dietikon, Switzerland. “The majority of the downward pressure came from the European debt crisis. The oil demand situation is not that bad.”
U.S. supplies of crude oil rose 162,000 barrels to 362.7 million in the week ended May 14, an Energy Department report showed yesterday. Stockpiles were forecast to increase 500,000 barrels, according to the median of 15 analyst estimates in a Bloomberg News survey.
Distillate fuel stockpiles, including heating oil and diesel, dropped for the first time in seven weeks, falling 979,000 barrels to 152.8 million.
Relative Strength Index
Futures are down 11 percent this year. Oil’s relative strength index shows prices on technical charts may have fallen too rapidly. The 14-day RSI is below 30, signaling the market may be oversold, according to data compiled by Bloomberg.
Crude has lost a fifth of its value since May 3, when futures reached a 19-month high of $87.15 a barrel, on speculation Europe’s sovereign-debt crisis will derail the global economic recovery and curb fuel demand. It fell yesterday to $67.90, the lowest price in more than seven months.
“We’ve come off very sharply the last couple of weeks and that’s been attributable to a stronger dollar, widespread risk aversion and a global growth outlook which has been dented by sovereign debt issues in Europe,” said Toby Hassall, research analyst at CWA Global Markets Pty in Sydney. “There will be those that are looking at the declines and seeing an opportunity to get long at these levels.”