Crude Rises From Five-Year Low as Dollar DeclinesMark Shenk
West Texas Intermediate and Brent oils climbed from five-year lows as the dollar fell and a technical indicator signaled the market is due for a rebound.
Futures climbed as the U.S. currency dropped from the strongest level in two years versus the euro. A weaker dollar bolsters the appeal of raw materials as a store of value. Prices have tumbled since the 12-nation Organization of Petroleum Exporting Countries decided Nov. 27 to maintain output levels, letting prices decrease to a level that may slow U.S. output that’s surged to the highest level in three decades.
The 14-day relative strength index for WTI stood at 26.1178 at 3:01 p.m. in New York, according to data compiled by Bloomberg. Investors typically start buying contracts when the reading is below 30. The 14-day RSI for Brent was 22.6576.
“The commodities are popping today because of the break in the dollar’s rally,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said by phone. “The dollar’s plunge is giving oil a boost in what’s an oversold market.”
WTI for January delivery rose 77 cents, or 1.2 percent, to settle at $63.82 a barrel on the New York Mercantile Exchange. The contract closed at $63.05 yesterday, the lowest settlement since July 2009. Prices are down 35 percent this year.
Prices declined after the settlement as the American Petroleum Institute was said to report an increase in U.S. inventories. Crude stockpiles advanced 4.4 million barrels last week, the API said, according to Anthony Headrick. Cushing supplies rose 921,000. Futures were at $63.44 in electronic trading at 4:53 p.m.
Brent for January settlement climbed 65 cents, or 1 percent, to end the session at $66.84 a barrel on the London-based ICE Futures Europe. Prices closed at $66.19 yesterday, the lowest since September 2009. The European benchmark grade closed at a $3.02 premium to WTI.
The Bloomberg Dollar Spot Index dropped 0.5 percent today, while the Bloomberg Commodity Index climbed 1.2 percent.
The U.S. Energy Information Administration cut its crude price forecasts by $15 a barrel in response to the OPEC decision and rising U.S. output. WTI will average $62.75 a barrel in 2015 versus the November projection of $77.75, the EIA said today in its monthly Short-Term Energy Outlook. The agency trimmed its Brent crude estimate for next year to $68.08 from $83.42.
The EIA said U.S. production will rise to 8.6 million barrels a day this year and 9.32 million in 2015, up from 7.44 million last year. The 2015 forecast is down from last month’s estimate of 9.42 million. Falling prices will start to have an impact on U.S. output next year, agency Administrator Adam Sieminski said in an e-mailed statement.
“U.S. oil production growth is expected to slow next year in response to lower crude process, but annual output is forecast to still increase to the highest level since 1972,” Sieminski said.
WTI could slide to $50 a barrel, Sabine Schels, head of fundamental energy strategy at Bank of America, said in London today. Brent may fall below $60 before rebounding in the second half of next year, she said.
“The market is still going to struggle,” Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $120 billion of assets, said by phone. “The speculators are probably still a little longer than they want to be given the move in prices. There is more unwinding to come.”
Hedge funds have cut net-long positions by 48 percent from a record high in June. Speculators boosted their bullish bets by 14 percent in the week ended Dec. 2, the most in 20 months, U.S. Commodity Futures Trading Commission data on Dec. 5 show.
Futures dropped in early trading as OPEC’s largest members stepped up their price competition. Iraq reduced its Basrah Light crude price for January to the lowest in at least 11 years. Saudi Arabia, which led the 12-member group’s decision to maintain output at a Nov. 27 meeting, last week offered shipments to its Asian customers at the deepest discount in at least 14 years.
Iraq’s Oil Marketing Co. will sell Basrah Light to Asia at $4 a barrel below the average of Middle East benchmark Oman and Dubai grades, the steepest discount since Bloomberg started compiling the data in August 2003. The company reduced prices to U.S. buyers by 30 cents and marked up shipments to Europe by 10 cents, the list obtained by Bloomberg News showed.
Saudi Aramco, the state-run oil company, lowered the official selling price for Arab Light to Asia next month to $2 a barrel less than the average of Oman and Dubai, the company said by e-mail Dec. 4. That was $1.90 wider than December and the biggest discount in data compiled by Bloomberg since June 2000.
The EIA, the Energy Department’s statistical unit, is projected to report tomorrow that U.S. crude supplies dropped 2.7 million barrels last week, according to the median of eight analyst responses in a Bloomberg survey of analysts. The report is forecast to show that stockpiles of gasoline and distillate fuel, a category that includes heating oil and diesel, rose.
“Given the breathtaking selloff of the last few days the market’s taking a breath,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “There is no fundamental support out there.”
Gasoline and diesel futures climbed for the first time since Nov. 26. Gasoline increased 1.7 cents, or 1 percent, to close at $1.7236 a gallon in New York. Diesel rose 2.91 cents, or 1.4 percent, to settle at $2.084.
Regular gasoline at U.S. pumps fell to the lowest level since October 2010. The average retail price slipped 1.3 cents to $2.655 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.