Oil slid to a three-week low as the dollar strengthened and Goldman Sachs Group Inc. said a continuing surplus would send prices back down to $45 a barrel by October.
New York futures fell for a fifth day, the longest losing streak since March as a stronger dollar reduced oil’s investment appeal. Crude is poised to revisit earlier lows as producers’ easy access to cash will prolong a surplus and weigh on prices later this year, according to Goldman Sachs.
“The dollar is a big reason here,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $3.4 billion. “You are going to see some of the producers come back and you are going to see some production pick up.”
Oil’s rebound from a six-year low in March has faltered near $60 a barrel amid speculation that rising prices will encourage production in U.S. shale formations. The Organization of Petroleum Exporting Countries, led by Saudi Arabia, has increased output, exacerbating the oversupply.
West Texas Intermediate for June delivery, which expired Tuesday, dropped $2.17, or 3.7 percent, to $57.26 a barrel on the New York Mercantile Exchange, the lowest settlement since April 28.
Brent for July settlement slid $2.25, or 3.4 percent, to $64.02 a barrel on the London-based ICE Futures Europe exchange, the lowest since April 22. The European benchmark crude traded at a premium of $6.03 to WTI for the same month.
The euro tumbled the most in two months against the dollar after a European Central Bank official said the bank will speed up its bond-buying program before an anticipated mid-year lull. The Bloomberg Spot Dollar Index gained as much as 1 percent.
“It’s definitely a currency-rated move right now,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The dollar is putting downward pressure on the market. There’s a lot of concern that producers will keep pumping oil.”
U.S. companies still have access to cheap external capital and there is a rising backlog of drilled but uncompleted wells that can be brought into production quickly, Goldman analysts including Jeffrey Currie said in an e-mailed report dated Monday.
Drillers in the U.S., the world’s biggest oil user, reduced the number of active rigs by eight to 660 through May 15, the smallest cut since December, according to data from Baker Hughes Inc. The rig count has further to fall, Currie said at a Platts forum in London on Tuesday.
U.S. crude inventories probably shrank by 2 million barrels through May 15, according to a Bloomberg survey before an Energy Information Administration report Wednesday. They dropped to 484.8 million barrels in the week ended May 8, EIA data showed last week. Supplies still remain near the highest level in 85 years, based on monthly records dating back to 1920, and are more than 100 million barrels above the five-year average for this time of the year.
Supplies dropped by 5.2 million barrels last week, the American Petroleum Institute was said to report, according to ForexLive. Stockpiles at Cushing, Oklahoma, the delivery point for WTI futures, were said to have fallen by 217,000 barrels.
Saudi Arabia shipped more oil in March than in any month since November 2005 as the world’s biggest exporter battled for market share.
OPEC, which supplies about 40 percent of the world’s oil, agreed at a November meeting to maintain its collective production target at 30 million barrels a day. That is the right level, Iran’s Deputy Oil Minister Roknoddin Javadi said in Kuala Lumpur on Monday. The group next meets on June 5 in Vienna.
While OPEC will look at supply and demand before making a decision on output in June, the current situation differs from November because prices are improving, Nawal al-Fezaia, Kuwait’s governor to the 12-member group, told reporters in Kuwait City Monday.