Crude dropped in New York after the dollar rose against the euro as European Central Bank President Mario Draghi said economic risks remain after the bank cut rates to a record low.
Futures fell 0.5 percent as the dollar reached a one-month high against the common currency. Draghi said there were “downside risks” to the euro-area’s economic outlook. Prices briefly advanced after an Energy Department report showed that U.S. crude supplies fell 4.27 million barrels to 382.9 million last week, the biggest decrease since December.
“The dollar is the only place to be,” said Marshall Berol, co-portfolio manager of the Encompass Fund in San Francisco, which has about $300 million in assets. “The ECB is trying to stimulate the economy, and there are a lot of doubts about their ability to turn things around. The dollar is strong while just about every other market is weak.”
Crude for August delivery fell 44 cents to settle at $87.22 a barrel on the New York Mercantile Exchange. Prices are down 12 percent this year.
There was no floor trading yesterday because of the U.S. Independence Day holiday. Transactions since the last close were booked with today’s trades for settlement purposes.
Some “downside risks to the euro-area economic outlook have materialized,” Draghi said at a press conference in Frankfurt after lowering the main refinancing rate and the deposit rate by 25 basis points to 0.75 percent and zero respectively. “Economic growth in the euro area continues to remain weak with heightened uncertainty weighing on both confidence and sentiment,” he said.
“We’re keying off the dollar,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “The ECB interest-rate cut should be good for oil, but its impact on the dollar is overwhelming any positive impact it will have on the economy.”
The dollar rose as much as 1.3 percent against the euro. An increasing U.S. currency reduces the appeal of raw materials as an investment.
Service industries in the U.S. expanded in June at the slowest pace since January 2010, a sign the biggest part of the economy is struggling to gain momentum. The Institute for Supply Management’s non-manufacturing index fell to 52.1 from 53.7 in May, the Tempe, Arizona-based group said today. The median forecast of 70 economists surveyed by Bloomberg called for 53.
The decline in U.S. crude oil inventories was almost twice the 2.3 million-barrel median forecast in a Bloomberg survey of nine analysts.
“We got a bid from the draw in crude stocks,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We were down earlier because of the dollar and will probably end lower unless the financial markets turn around.”
Stockpiles of distillate fuel, a category that includes heating oil and diesel, fell 1.05 million barrels to 117.8 million last week, the report showed. Gasoline supplies rose 151,000 barrels to 205 million in the seven days ended June 29, the Energy Department said.
Brent oil in London rose as Statoil ASA, Norway’s largest crude producer, prepared to halt output. The Norwegian Oil Industry Association, which represents employers, will ban all members of three labor unions who are covered by offshore pay agreements from midnight on July 9, Statoil said.
Brent oil for August settlement advanced 93 cents, or 0.9 percent, to end the session at $100.70 a barrel on the London-based ICE Futures Europe exchange. It was the highest settle since May 31.
The planned lockout of oil workers in Norway will halt the nation’s entire offshore production, which totals about 2 million barrels a day of oil equivalent, Bard Glad Pedersen, a spokesman for Statoil ASA, said by phone today from Oslo.
“This strike and potential shutdown negatively impacts North Sea supply, as such the price of the Brent benchmark; that’s why this is significant,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London. “The government has the legal right to end the strike and prevent the shutdown. The question is when they’ll use it.”
Electronic trading volume on the Nymex was 615,547 contracts as of 3:16 p.m. in New York. Volume totaled 648,233 contracts July 3, 14 percent above the three-month average. Open interest was 1.44 million.