Oil Falls From 10-Month High as Dollar Strength Halts Rally

Finding Energy Opportunities in Oil's Price Rally
  • U.S. oil inventories fell 3.23 million barrels last week: EIA
  • Canadian oil site halted by new fire begins to resume

Oil declined from a 10-month high in New York as a stronger dollar countered a rally driven by tightening global supplies.

Futures fell 1.3 percent as global equities retreated and the U.S. currency strengthened against its peers, making commodities less attractive as an investment. Crude had settled at the highest since July 15 on Wednesday after the U.S. government said stockpiles dropped by 3.23 million barrels last week to a two-month low.

"There’s a financial angle to today’s retreat," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "There’s some light profit-taking after the run up in prices and the decline is prompted at least in part by the recovery of the dollar." 

Oil has surged more than 90 percent from a 12-year low in February amid unexpected disruptions and a slide in U.S. output, which is under pressure from the Organization of Petroleum Exporting Countries’ policy of pumping without limits. Militant attacks have hobbled production in Nigeria, while oil companies in Canada earlier suspended operations at facilities threatened by wildfires.

West Texas Intermediate for July delivery dropped 67 cents to $50.56 a barrel on the New York Mercantile Exchange. Futures rose 1.7 percent to settle at $51.23 on Wednesday. Total volume traded was about 6 percent below the 100-day average.

Markets Decline

Brent for August settlement fell 56 cents, or 1.1 percent, to $51.95 a barrel on the London-based ICE Futures Europe exchange. Brent climbed 2.1 percent to $52.51 Wednesday, the highest close since Oct. 9. The global benchmark oil closed at a 73-cent premium to WTI for August delivery.

The MSCI All-Country World Index, a gauge of stocks around the world, dropped from a six-month high. The Bloomberg Dollar Index, which tracks the value of the dollar against the currencies of 10 trading partners, rose for the first time in three days. The Bloomberg Commodity Index was set to end the longest run of gains since March. Germany’s 10-year bond yields traded near a record-low as investors look for a safe haven.

"We’re seeing a flight to safety," said John Kilduff, partner at Again Capital LLC, a New York hedge fund focused on energy. "The plunge of German bonds, or bunds, is an example of this flight. There are renewed concerns about global economic strength."

Crude Stockpiles

U.S. crude inventories declined for a third week, to 532.5 million barrels, data from the Energy Information Administration showed. Supplies at Cushing, Oklahoma, the delivery point for WTI and the nation’s biggest oil-storage hub, fell for a third week to 65.6 million barrels. U.S. production increased 0.1 percent last week, halting 12 weeks of declines.

A new wildfire prompted Canadian oil producers Cenovus Energy Inc. and Canadian Natural Resources Ltd. to shut output, the companies said in e-mails Wednesday. Cenovus evacuated workers and shut its Pelican Lake operations while Canadian Natural reduced output at a nearby site. On Thursday, Canadian Natural said it had returned to normal operations.

Fires in the oil-sands region are expected to disrupt supplies by an average of 400,000 barrels a day this month, after peaking at more than 1.1 million barrels a day in May, according to the EIA.

Oil-market news:

  • Oil will return to around $70 a barrel next year as the large overhang of crude is reduced, according to Energy Aspects; Nomura Holdings Inc. forecast Brent will reach $70 by December.
  • Iranian Light crude for July sales to Asia rose to the highest level against local benchmarks since 2014, a National Iranian Oil official said by phone Thursday, asking not to be identified because of internal policy.
  • Rebel attacks on oil installations cut Nigeria’s production by 160,000 barrels a day, or 10 percent, to 1.45 million a day in May, contributing to a drop in monthly output from OPEC, according to a Bloomberg News survey.
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