Crude oil tumbled from a five-month high after the dollar rebounded versus the euro and U.S. equities declined, wiping out an early advance.
Oil fell the most in three weeks as the greenback climbed against the common currency for the first time in three days, reducing the appeal of commodities as an alternative investment. The Standard & Poor’s 500 Index slipped for a second day as raw-material prices dropped, sending producer shares lower.
“The dollar and equities are the main drivers,” said Kyle Cooper, director of research for IAF Advisors in Houston. “What happens with inventories and demand isn’t that important.”
Crude oil for November delivery fell $1.56, or 1.9 percent, to settle at $81.67 a barrel on the New York Mercantile Exchange. It was the biggest decrease since Sept. 16. Oil reached $84.43 earlier today, the highest level since May 4. Futures are up 17 percent from a year ago
Brent crude oil for November settlement declined $1.63, or 1.9 percent, to end the session at $83.43 a barrel on the ICE Futures Europe exchange in London. It reached $86.02, the highest level since May 4.
The U.S. currency rose after applications for U.S. unemployment benefits unexpectedly fell. Jobless claims dropped by 11,000 to 445,000 in the week ended Oct. 2, the fewest since July 10, Labor Department figures showed today in Washington. The dollar climbed 0.1 percent against the euro to $1.3918 after reaching an eight-month low of $1.4029 in New York.
A report tomorrow may show the jobless rate increased in September for a second month. Private employers in September added 75,000 workers while total payrolls were unchanged, according to a Bloomberg survey before tomorrow’s Labor Department figures. The unemployment rate may have increased to 9.7 percent last month.
“We’ve had a hell of a runup the last two weeks, so it makes sense to sell, especially before tomorrow’s payroll report,” said Stephen Schork, president of Schork Group Inc., a consulting company in Villanova, Pennsylvania. “We’re also falling because the dollar has rebounded after taking a hammering overnight.”
The S&P 500 Index slipped 0.2 percent to 1,158.06. It climbed to the highest level since May on Oct. 5. The Dow Jones Industrial Average declined 0.2 percent to 10,948.58.
“The markets are extremely overstretched,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “When prices have risen as fast as they have, you don’t need a specific reason for a turnaround. Sometimes the buying dries up and people run for the exits.”
U.S. crude oil supplies climbed 3.09 million barrels to 360.9 million in the week ended Oct. 1, leaving stockpiles 13 percent higher than the five-year average for the period, an Energy Department report showed yesterday.
Fuel consumption dropped 6.4 percent to 18.5 million barrels a day, the biggest weekly decline since Feb. 27, 2004, according to the department.
“We’ve had a very nice rally in spite of some bearish news,” said Addison Armstrong, director of market research at Tradition Energy, a Stamford, Connecticut-based procurement adviser. “With inventories so high and demand flagging, there’s clearly no fundamental reason for such high prices.”
Saudi Arabia may want to keep oil below $80 a barrel, Leo Drollas, London-based director and chief economist at the Centre for Global Energy Studies, said today. The desert kingdom is the biggest crude producer in the Organization of Petroleum Exporting Countries and holds the world’s biggest reserves.
Possible Saudi Action
“There is a feeling that Saudi Arabia gets nervous above $80 a barrel and they might leak oil to keep prices lower,” Drollas said at a conference in London.
OPEC is scheduled to meet Oct. 14 in Vienna to discuss the group’s production policy.
An 11-day-old strike at the French port of Marseille’s oil terminals stranded 51 vessels and threatened to shut down refinery operations. The industrial action will last “at least” until tomorrow, Pascal Galeote, a CGT union port-worker representative, said today by telephone from Marseille.
Ships that can’t dock at the Fos oil terminal include 13 tankers carrying crude and 15 with refined oil products, according to a statement from the port authority. Eight vessels, including five crude carriers, are waiting outside Marseille harbor.
Oil volume in electronic trading on the Nymex was 859,180 contracts as of 3:24 p.m. in New York. Volume totaled 809,334 contracts yesterday, 22 percent above the average of the past three months. Open interest was 1.44 million contracts, the highest level since May 17.