Crude Oil Falls on Dollar Advance, Speculation of Supply Gains

Bloomberg.com

By Christian Schmollinger and Ben Sharples

July 6 (Bloomberg) — Crude oil fell to the lowest in five weeks on a stronger dollar and speculation U.S. fuel inventories will increase as the recession curbs demand in the world’s biggest energy-consuming country.

Oil and commodities including gold declined as the dollar climbed against the euro, limiting investor appetite for assets to hedge against inflation. Eighteen of 37 analysts surveyed by Bloomberg News, or 49 percent, said oil futures will decline through July 10.

“The dollar has strengthened and that means weaker crude oil,” said Anthony Nunan, an assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “You look at the prompt fundamentals as viewed by the inventories and they are still very high, especially for products.”

Crude oil for August delivery fell as much as $2.08, or 3.1 percent, to $64.65 a barrel on the New York Mercantile Exchange, the lowest intraday price since May 29. Oil was at $64.90 at 2:42 p.m. Singapore time. Electronic trades from July 3 are counted as part of today’s session because of the U.S. Independence Day holiday that closed floor activity.

A rising dollar reduces the attraction of raw materials such as oil and gold. The dollar traded at $1.3953 per euro from $1.3980. The dollar has risen since July 2 after worse-than- expected U.S. non-farm payroll data.

“The U.S. dollar is a bit firmer this morning and that is probably hurting the oil price,” said David Moore, a commodity strategist at Commonwealth Bank of Australia. “There may be a bit of a follow through after the poor employment report from the U.S., which has left people more cautious about the outlook for the economy.”

Gold for immediate delivery dropped 0.4 percent to $928.59 an ounce at 2:22 p.m. in Singapore.

Chevron Attack

The Movement for the Emancipation of the Niger Delta, the main militant group in Nigeria, said today that it blew up a pipeline operated by Chevron Nigeria Ltd. The bomb destroyed the “strategic Okan manifold” that controls the flow for about 80 percent of the company’s offshore crude oil, according to an e- mail from Jomo Gbomo, a group spokesman.

MEND said yesterday it attacked an oil facility run by Royal Dutch Shell Plc in the country’s southern region.

Armed attacks in the Niger River delta, which accounts for nearly all of Nigeria’s oil, have cut more than 20 percent of the country’s oil exports since 2006. Nigeria is Africa’s leading oil producer and the fifth-biggest source of U.S. oil imports.

“Oil is softer despite news of further disruptions to supply in Nigeria,” Moore said.

Fuel Inventories

U.S. gasoline stockpiles climbed 2.33 million barrels to 211.2 million last week, an Energy Department report on July 1 showed. Inventories of distillate fuel, a category that includes diesel and heating oil, climbed 2.9 million barrels to 155 million, the highest since 1987.

Total daily fuel demand averaged over the four weeks ended June 26 was down 5.8 percent from a year earlier, the Energy Department said. Distillate-fuel demand over the period fell 9.4 percent to 3.4 million barrels a day.

Gasoline for August delivery on the New York Mercantile Exchange declined as much as 4.68 cents, or 2.6 percent, to $1.744 a gallon.

Kuwait Output

Kuwait, the sixth-biggest producer of the Organization of Petroleum Exporting Countries, wants to see oil prices stay above $60 a barrel and will watch the market closely before deciding on its output at OPEC’s meeting in September, the country’s oil minister said yesterday.

“We’d like to see the price not go below a certain level, at least to meet our budgetary target,” Sheikh Ahmed al- Abdullah al-Sabah told reporters yesterday in Kuwait City. That certain level for Kuwait is $60 a barrel, he said.

Saudi Aramco, the world’s largest state-owned oil company, lowered its official selling prices for exports of all crude oil grades to the U.S. in August. The producer raised the level of its Super Light, Extra Light and Light types for sale to Asia and reduced its Medium and Heavy prices, according to an e-mail sent to Bloomberg News.

Brent crude oil for August settlement fell as much as $1.03, or 1.6 percent, to $64.58 a barrel on London’s ICE Futures Europe exchange. It was at $64.68 a barrel at 2:45 p.m. Singapore time.

To contact the reporters on this story: Christian Schmollinger in Singapore at [email protected]; Ben Sharples in Melbourne at [email protected].

Last Updated: July 6, 2009 02:47 EDT

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