Crude Oil Retreats After Federal Reserve Minutes Bolster Dollar

  • Bloomberg Dollar Index rose as much as 0.7% after Fed release
  • Gasoline supplies slip 2.5m bbl, distillate drops 3.17m: EIA

Oil Glut Absorbs Canada, Nigeria Disruption Shocks

Oil dropped from a seven-month high as the dollar surged after the Federal Reserve published minutes of its latest monetary policy meeting suggesting a June hike is possible.

Commodities fell as the Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 others, surged. The April minutes showed that policy makers saw an interest-rate hike appropriate in June if labor markets and economic growth continued to strengthen. Oil rose earlier after government data showed a bigger-than-anticipated U.S. fuel-supply drop as demand grew.

"Oil traders aren’t necessarily that concerned about Fed policy, just what it means for the dollar," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "The dollar climbed to new highs after the release of the minutes and that makes a range of commodities less attractive to hold."

Oil has surged more than 80 percent from a 12-year low earlier this year on signs the global glut will ease as U.S. output declines. The market has moved into a production deficit earlier than expected following supply disruptions in Nigeria and an increase in demand, according to Goldman Sachs Group Inc.

West Texas Intermediate oil for June delivery slipped 12 cents to settle at $48.19 a barrel on the New York Mercantile Exchange. Futures touched $48.95 earlier, the highest since Oct. 12.

QuickTake Oil Prices

Dollar Rebound

Brent for July settlement rose 35 cents, or 0.7 percent, to $48.93 a barrel on the London-based ICE Futures Europe exchange. The contract earlier reached $49.85, the highest since Nov. 4. The global benchmark crude closed at a 15-cent premium to July WTI.

The Bloomberg Dollar Spot Index rose as much as 0.7 percent after the release of the Fed minutes at 2 p.m. in Washington. A strong greenback reduces the appeal of commodities priced in the currency as a store of value.

WTI climbed as much as 1.3 percent earlier as investors focused on fuel inventories and shrugged off an unexpected gain in U.S. crude stockpiles. Nationwide crude supplies rose 1.31 million barrels to 541.3 million last week, just short of the 87-year high of 543.4 million reached in April, EIA data show. Analysts surveyed by Bloomberg had projected a 3.5 million-barrel decline. 

Gasoline stockpiles dropped 2.5 million barrels to 238.1 million, the lowest since the week ended Jan. 1. The decline was more than double what analysts had forecast. Consumption of the motor fuel was 9.56 million barrels a day in the four weeks ended May 13, the highest seasonal level in at least a decade, according to EIA data.

Gasoline Demand Exceeds Prior Years

Supplies of distillate fuel fell 3.17 million barrels to 152.2 million, the lowest since December and more than three-times what analysts forecast. Demand averaged 4.1 million barrels a day in the past four weeks, the highest in almost a year.

June gasoline rose 0.9 percent to $1.6489 a gallon, after touching $1.6637, marking the highest close since August. Diesel for June delivery climbed 1.1 percent to $1.4831, the highest settlement since November.

Refineries increased operating rates by 1.4 percentage points to 90.5 percent of capacity. U.S. refiners typically increase utilization in May as they finish maintenance before the summer peak driving season.

Crude supplies at Cushing, Oklahoma, the delivery point for WTI and the nation’s biggest oil-storage hub, climbed by 461,000 barrels to 68.3 million.

"We’re in uncharted territory when it comes to Cushing supplies," said Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida.

Crude imports from Canada dropped while arrivals on the Gulf Coast surged to the highest level this year. Shipments from Canada dropped 12 percent to 2.59 million barrels a day. Imports on the Gulf Coast surged 21 percent to 3.68 million barrels a day.

Wildfires in Canada have shifted back toward oil-sands operations, forcing Suncor Energy Inc. to evacuate three sites it was restarting. Oil-sands output has been reduced by about 1.2 million barrels a day, according to the Conference Board of Canada.

Oil-market news:

  • Exxon was said to resume output of Nigeria’s Qua Iboe grade. Supplies of three more of the country’s key blends -- Bonny Light, Forcados and Escravos -- have been disrupted as a result of sabotage and accidents.
  • Venezuela is offering oil at the biggest discounts in seven years as the third-largest supplier to U.S. refineries fights to defend its market share from Canadian and Middle Eastern grades.
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