Crude Falls for First Time in Five Days as Dollar Gains

West Texas Intermediate crude fell for the first time in five days as the dollar strengthened to a three-week high against other major currencies. WTI narrowed its discount to Brent to the least in two years.

Futures dropped as the Dollar Index climbed after data showed consumers were more confident than forecast in June and Federal Reserve Governor Jeremy Stein made comments on monetary stimulus. The U.S. benchmark rose for the third time in four weeks and the first month since March. For the quarter, it declined 0.7 percent.

“The problem is the dollar,” said Bill Baruch, a senior market strategist at commodities trading firm in Chicago. “The stronger dollar is weighing on the market. If the dollar was weaker, crude may be testing $100 already.”

WTI for August delivery slid 49 cents, or 0.5 percent, to settle at $96.56 a barrel on the New York Mercantile Exchange after rising to $97.82. The volume of all futures traded was 2.2 percent lower than the 100-day average for the time of day at 2:41 p.m. Futures rose 3.1 percent this week and 5 percent in June.

Brent for August settlement fell 66 cents, or 0.6 percent, to end at $102.16 a barrel on the London-based ICE Futures Europe exchange. Volume was 10 percent below the 100-day average. The European benchmark crude’s premium to WTI shrank to $5.60, the least since January 2011.

Dollar Index

The Dollar Index, which measures the greenback against six other major currencies including the euro, rose as much as 0.5 percent to 83.344, the highest level since June 3. The index has advanced 3.2 percent since June 18. A stronger dollar reduces oil’s appeal as an investment alternative.

The Thomson Reuters/University of Michigan index of consumer confidence for this month was 84.1, higher than the median forecast of 83 percent in a Bloomberg survey.

The Fed’s Stein said the central bank may make a decision in September about tapering monetary stimulus. Fed Chairman Ben S. Bernanke said on June 19 that the central bank may trim the $85 billion-a-month bond purchases and end them in the middle of 2014 if the economy continues to improve.

“Some of the U.S. data has been modestly positive,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “The story of modest growth continues and it’s supportive for crude.”

Gasoline Demand

WTI gained for the first month since March as gasoline demand grew and refineries used more crude to meet rising consumption during summer, when many Americans take vacations.

“We seem to be drawing investment flows into the market,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.

Total petroleum use in the U.S. increased 3 percent last week to 19 million barrels a day, the most since May 3, the Energy Information Administration reported on June 26. Gasoline consumption grew 0.6 percent to 8.89 million barrels a day.

Refiners boosted operating rates to 90.2 percent, the highest level this year. Processing units are often restarted late in the spring, after being idled for maintenance in winter.

“We are seeing good data out of the U.S. and Europe,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “There are expectations of better gasoline demand in the third quarter.”

Retracement Level

WTI advanced this week after prices broke above $96.71 yesterday, the 61.8 percent retracement level between June 19’s high and June 24’s low on a Fibonacci chart, according to Baruch.

“It’s a technical market now,” Baruch said. The $96.71 is “now the support level.”

Brent’s premium over WTI narrowed as the European benchmark fell 7.1 percent this quarter. The Buzzard field in the North Sea returned to approximately full pumping rates of about 208,000 barrels a day about a week after a June 6 halt because of an equipment failure.

Buzzard is the largest contributor to the Forties crude grade, which sets the value of Dated Brent, the benchmark used to price more than half of the world’s crude.

Inventories at Cushing, Oklahoma, the delivery point for WTI futures, decreased to 48.6 million barrels on June 14, the lowest level since Dec. 14. They gained 1.4 percent last week to 49.3 million and total U.S. inventories rose to 394.1 million.

“I am not surprised by the narrowing spread,” Schenker said. “It’s a physical market, and the spread could narrow even further through the end of the year.”

Implied volatility for at-the-money WTI options expiring in August was 19.6 percent, down from 20.7 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 501,488 contracts as of 2:54 p.m. It totaled 577,969 contracts yesterday, 7.4 percent lower than the three-month average. Open interest was 1.82 million contracts.

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