Crude oil fell, heading for a second weekly decline, as the stronger dollar diminished the appeal of commodities as an inflation hedge.
Oil has tumbled 23 per cent from the record $147.27 a barrel reached on July 11. The dollar headed for a fifth weekly gain against the euro, its longest winning streak in more than two years, on speculation US consumer spending will keep the world’s biggest economy out of recession.
“The bullish case for commodities is being consistently undermined by the dollar,” MF Global Ltd analyst Edward Meir said in a report today. “We see good staying power behind the current dollar rally, and expect the greenback to strengthen.”
Crude oil for September delivery dropped as much as $2.26, or 2 per cent, to $112.75 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $113.39 at 11:46 am London time. Prices have declined 1.5 per cent this week.
Gasoline demand was down 2.1 per cent in the first seven months of the year as record prices and slower economic growth cut consumer spending, the American Petroleum Institute said Aug 13. Europe’s economy contracted in the second quarter for the first time since the introduction of the euro almost a decade ago, a report showed.
“It’s not just a US problem, it’s a global problem and it’s taking its toll on commodities,” said Peter Luxton, an energy analyst at Informa Global Markets. “What’s happening elsewhere is starting to take its toll.”
Dollar Gains: European gross domestic product fell 0.2 per cent in the second quarter from the first, when it increased 0.7 per cent, the European Union statistics office in Luxembourg said yesterday.
The dollar climbed against the euro to $1.4698, the strongest level since Feb. 20, before trading at $1.4728 as of 10:31 am in London, compared with $1.4826 yesterday. The US currency has risen 2 per cent this week.
Brent crude for October settlement fell as much as $1.24, or 1.1 per cent, to $111.40 a barrel on London’s ICE Futures Europe exchange, and traded at $112.24 at 11:51 am local time.
Crude oil prices may rise next week as US gasoline inventories fall because refineries are cutting output in response to low profit margins.
Nineteen of 30 analysts surveyed by Bloomberg News, or 63 per cent, said prices will rise through Aug. 22. It was the most bullish response since December 2006.
Seven of the respondents, or 23 per cent, said oil will be little changed and four said there would be a drop in prices. Last week 37 per cent expected a decline and 34 per cent predicted an increase.
