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Crude Drops as Dollar Strengthens After Jobless Claims

May 9 (Bloomberg) -- West Texas Intermediate crude retreated from a one-month high as the dollar rose against the euro after the number of Americans filing jobless claims unexpectedly fell to the fewest in more than five years.

Prices dropped 23 cents and the dollar advanced for the first time in three days on the government data, which signaled that the labor market may be strengthening. The spread between WTI and Brent oil was near the narrowest in two years. U.S. crude stockpiles were the most since 1931 last week, the Energy Information Administration said yesterday. Futures pared losses with equities in the last 20 minutes of floor trading.

“The dollar is definitely weighing on the market,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. Supplies have created “a tremendous overhang,” and “it seems like more oil is coming out every day. It’s a situation that at some point has to overwhelm prices.”

WTI for June delivery settled at $96.39 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 29 percent above the 100-day average for the time of day at 3:31 p.m. Futures climbed to $96.62 yesterday, the highest settlement since April 2. Today’s move was the smallest in three weeks.

The dollar rose as much as 1.1 percent to $1.3011 per euro. A stronger dollar and weaker euro reduce dollar-denominated oil’s appeal as an investment alternative.

Stronger Dollar

The dollar “seems to be the main reason pushing down oil prices,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “It’s getting stronger after the very good weekly jobless claims number. The market is re-examining the fact that we have plenty of supplies in this country.”

Applications for unemployment insurance payments decreased by 4,000 to 323,000 in the week ended May 4, the least since January 2008, the Labor Department said in Washington. Economists forecast 335,000 claims, according to the median estimate in a Bloomberg survey.

Oil futures are heading for their third weekly increase and have advanced 11 percent since April 17.

“The longs are having trouble holding the market up near these levels,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago.

Brent Declines

Brent for June settlement increased 13 cents to end the session at $104.47 a barrel on the London-based ICE Futures Europe exchange. Volume was 7.1 percent above the 100-day average.

The European benchmark grade was at an $8.08 premium to WTI. Yesterday, it was $7.72, the narrowest level based on closing prices since Jan. 20, 2011.

Brent has dropped 6 percent this year after the restart of North Sea oil fields such as Buzzard and Elgin-Franklin in March and as the debt crisis in Europe limited economic growth and oil demand. WTI has gained 5 percent in 2013 as inventories fell at Cushing, Oklahoma, the delivery point for Nymex futures.

“I didn’t think that we would get below $8,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “Part of it is an abundance of North Sea oil with general economic malaise in Europe.”

U.S. Supplies

Overall U.S. crude inventories increased 230,000 barrels to 395.5 million barrels in the seven days ended May 3, rising for a third week, the EIA, the Energy Department’s statistical arm, reported.

“The dollar is weighing on the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We still have multidecade highs in oil inventories. The market is trying to rally but fundamentals are limiting its advance.”

Stockpiles at Cushing declined to 49.1 million barrels in the week ended May 3, the lowest level since March 15.

Enterprise Products Partners LP and Enbridge Inc. switched the direction of the Seaway crude pipeline last year to move barrels to the Houston area from Cushing. Seaway is operating below capacity because of limited offtake capability at the end of the line, which won’t be repaired until next year.

The pipeline’s capacity was expanded to 400,000 barrels a day on Jan. 11. Daily throughput will average about 295,000 barrels a day through May, according to a filing yesterday with the Federal Energy Regulatory Commission.

Oil pared losses in the last 20 minutes of floor trading as the Standard & Poor’s 500 Index rose 0.1 percent after dropping as much as 0.4 percent.

Implied volatility for at-the-money WTI options expiring in July was 20.3 percent at 3:30 p.m., up from 19.7 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 624,749 contracts as of 3:34 p.m. It totaled 704,362 contracts yesterday, 21 percent above the three-month average. Open interest was 1.76 million contracts.

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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