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Crude Oil Falls as Dollar Strengthens, Economic Outlook Remains a Concern
Oil fell from its highest price in more than a week on concern that last week’s 2.3 percent gain was optimistic, given the outlook for fuel demand in the U.S., the world’s biggest user of crude.
Futures declined after the dollar strengthened against the euro, making dollar-priced commodities less attractive for investors in other currencies. The Commerce Department reported on Aug. 27 the U.S. economy grew at an annual rate of 1.6 percent in the second quarter, down from an estimate of 2.4 percent last month.
“The drop is a reaction to oil’s massive increase last week, as U.S. economic data remains weak,” said Eugen Weinberg, head of commodity research at Commerzbank AG. “Today’s drop may be also due to a stronger dollar, but the story is that oil has been rising on expectations that demand will exceed supply and at some point the market will need to see this.”
Crude for October delivery fell 46 cents, or 0.6 percent, to $74.71 a barrel on the New York Mercantile Exchange as of 1:36 p.m. in London, after rising as much as 41 cents to $75.58. The price has dropped 5.4 percent this month. Brent crude for October was down 14 cents at $76.51 a barrel on the ICE Futures Europe Exchange in London, after gaining 40 cents to $77.05.
The New York contract rose as high as $75.59 on Aug. 27, the highest price since Aug. 19, after Federal Reserve Chairman Ben S. Bernanke said the Fed “will do all that it can” to ensure economic growth.
Brent-WTI Spread
London-traded Brent is trading at a premium of $1.80 a barrel to West Texas Intermediate futures in New York amid concerns that U.S. fuel demand may weaken as the peak summer gasoline consumption period ends after the Labor Day holiday last week. Expectations of higher European fuel demand are also widening Brent’s premium to WTI after Germany, the continent’s largest economy, last week reported a 2.2 percent expansion of its gross domestic product.
The National Hurricane Center forecast that Earl, the third hurricane of the Atlantic season that runs from June through November, would become a “major” storm later in the day with sustained winds exceeding 111 miles (180 kilometers) per hour.
Earl grew in intensity to a Category 2 hurricane on the five-step Saffir-Simpson scale and is moving west-northwest at 14 mph, likely passing the Virgin Islands about 60 miles east of Puerto Rico this afternoon. Meteorologists expect Earl to turn northward and curl near the U.S. East Coast later this week.
Price Forecasts
Brent crude oil prices will exceed $100 a barrel by 2012 as global economic growth rebounds next year fueling an increase in energy demand, said Nordea Bank AB, the Nordic region’s largest bank. Brent will average $79 a barrel in this year’s fourth quarter, $85.75 in 2011 and $102.50 in 2012, Nordea said in a report today.
Hedge-fund managers and other large speculators decreased their net-long position in New York crude-oil futures in the week ended Aug. 24, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 27,323 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 34,733 contracts, or 56 percent, from a week earlier.
To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Ayesha Daya in Dubai adaya1@bloomberg.net
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