New York : Another jump in the dollar sent oil prices below $111 a barrel on Thursday as speculators who drove crude futures to nearly $120 pulled out of the market.
The dollar’s rise against the euro and other currencies stripped away some of oil’s appeal to investors who have been betting for months that the greenback would continue to falter. When the greenback gains ground, commodities such as oil lose their value as a hedge against inflation, prompting selling. Also, a stronger dollar makes oil more expensive to investors overseas.
As the dollar has streng-thened this week, oil futures have dropped more than $9 from their highs to trade at their lowest level since April 14. Yesterday, light, sweet crude for June delivery fell $2.53 to $110.93 a barrel on the New York Mercantile Exchange, while the euro bought $1.5514, down from $1.5642.
But analysts caution that the declines in oil could be temporary. The dollar’s protracted decline has been a major factor behind oil’s rise from about $64 a year ago, and future dollar weakness could easily push crude futures above $120.
“It’s all about the dollar,” said James Cordier, president of Tampa, Florida, trading firms Liberty Trading Group and OptionSellers.com. “I don’t think the dollar is going to stay strong.” The dollar’s gains in recent days has come on a view that the Federal Reserve’s interest rate cutting campaign is nearing its end; lower interest rates tend to weaken the dollar. The Fed cut rates a quarter percentage point on Wednesday, and did not give a clear indication of its future plans. But with the benchmark federal funds rate at 2 per cent, investors sense that the Fed can’t cut rates much further.
“It’s not going to be zero (per cent), it’s not going to be a half (per cent),” Cordier said.
However, other nations’ central banks are considering raising interest rates, actions that could further weaken the dollar, Cordier said. If that happens, or if there is a major supply disruption, crude prices could easily rise to $130 in June, he said, and that could push gas prices to $4 a gallon ($1.05) in the US
Despite crude’s recent declines, gas prices are likely to keep rising for a while. Crude’s rapid rise over the past year has squeezed refinery profit margins; refiners must pay for the oil they refine into fuel, but have been unable to raise gas prices fast enough to keep up with crude.
While oil prices are up about 73 per cent in the last year, gas prices are only up 22 per cent.
Yesterday, ExxonMobil Corp. reported a first quarter profit of $10.9 billion, but missed analyst expectations. The company said significantly lower worldwide refining margins reduced earnings by about $1 billion in the quarter.
In other Nymex trading yesterday, June heating gasoline futures fell 7.49 cents to $2.8314 a gallon, and June heating oil futures fell 7.39 cents to $3.0841 a gallon.
June natural gas futures fell 24.8 cents to $10.595 per 1,000 cubic feet. The Energy Department said natural gas inventories rose by 86 billion cubic feet last week, more than many analysts had expected.
In London, June Brent crude futures fell $2.04 to $109.32 a barrel on the ICE Futures exchange.
workers end strike
The workers union behind a strike that slashed Nigeria’s oil output and helped send crude prices soaring to historical heights ended its work action yesterday and said regular production would quickly resume.
The head of the workers’ bloc behind the strike at a ExxonMobil. unit in Africa’s biggest oil producer said members would return to their work stations after negotiators reached a broad accord with management.
Oil production will be restored “immediately,” Olufola George-Olumoroti, head of the white-collar bloc inside ExxonMobil’s Nigeria joint venture, said yesterday. ExxonMobil said in a statement that it was beginning to restart production.
Before the strike, Nigeria was producing about 2.1 million barrels of crude each day. The strike helped drive oil prices to all-time highs. Royal Dutch Shell PLC’s local unit also is suffering from shortfalls after militants blew up transport pipelines. Shell has said it may not be able to meet supply contracts totalling 169,000 barrels per day through May.
Nigeria is Africa’s biggest producer and a leading supplier of crude to the United States. But China and India are also making inroads into Nigeria’s petroleum sector, which is beset by militant and criminal activities.
Some analysts estimate that up to 10 per cent of Nigeria’s production is lost to black-market traders who steal oil from pipelines and ship it overseas for resale.