Oil falls $1 as strong dollar counters storm fears
Oil prices fell back toward a five-month low on Tuesday, resuming a near two-week slide as a resurgent US dollar drove investors away from commodities and OPEC appeared set to sit tight on production policy.
Concerns over another hurricane seen strengthening in the oil-rich Gulf of Mexico were countered by the greenback’s surge to a one-year peak against a basket of currencies after the US government’s takeover of troubled mortgage financiers.
US crude for October delivery fell $1.00 a barrel by 2:53 a.m. EDT, nearly hitting Monday’s five-month low of $104.70 a barrel as it resumes a slump that has shaved more than 10% off prices since Aug 27. London Brent crude fell 97 cents to $102.47 a barrel, threatening to dip back into double-digit territory for the first time since early April.
The dollar’s surge to its highest level against the euro since October 2007 prompted traders to shed commodity positions, extending a slump in commodities from corn to copper and dulling the oil market’s reaction to a pair of major hurricanes. “If it weren’t for the hurricanes, oil should be below $100 a barrel, considering the sentiment,” said Tetsu Emori, fund manager at Astmax Co Ltd.
Ahead of an OPEC meeting later on Tuesday, Saudi Arabian Oil Minister Ali al-Naimi said oil markets were “fairly well balanced” and inventories were healthy. The comment supports market expectations that OPEC ministers would keep production targets at current levels when they meet in Vienna later in the day, though some ministers have also suggested informal curbs by members exceeding current targets.
OPEC is estimated to be producing 790,000 barrels per day (bpd) above the collective ceiling of 29.67 million bpd for its 12 members with output limits. Earlier in the day, a senior OPEC source was quoted by Saudi-owned newspaper al-Hayat as saying cutting oil output ahead of the approach of peak winter demand would be “unjustified”.
Energy companies began shutting production on Monday as Hurricane Ike threatened to cross the US offshore oil patch before output shut by Hurricane Gustav last week could be restored. “Although seemingly very disruptive events, neither of these storms is playing much of a role in setting a more bullish direction,” First Energy Capital said in a report.
The dual outages are likely to trigger a serious drain on US inventories. US crude stocks likely fell by 4.3 million barrels in the week to Sept 5 after Gustav shut down fields, a preliminary Reuters poll of analysts showed. Gasoline stocks were seen falling by 4.2 million barrels and distillates by 2.5 million barrels in the data due on Wednesday. (Reuters)
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