Oil Plunges As Dollar Gains On Cyprus News

Crude-oil futures tumbled in electronic trading Monday, slapped lower by a surge in the dollar as worries spiked over a Cyprus bank levy and its implications for Europe.

Crude oil for April delivery  plunged $1.04, or 1.1%, to $92.41 a barrel during East Asian trading hours, more than erasing its 42-cent gain Friday on the New York Mercantile Exchange.

Similarly, London-traded rival benchmark Brent crude saw its May contract  retreat $1.27, or 1.2%, to $108.55 a barrel, burying its 86-cent advance on Friday.

The moves followed a surprise announcement Saturday by the government of Cyprus that a levy will be imposed on private bank deposits at the nation’s lenders as part of the country’s bailout program.

The move — and its possible implications for other financially strapped euro-zone nations — sent global financial markets into a frenzy, with Asian stocks and U.S. index futures dropping sharply while the dollar surged.

By midday in East Asia, the ICE dollar index  — a measure of the greenback against six rival units — had risen to 82.791, up significantly from 82.277 in North American trade on Friday.

A rising dollar tends to depress crude-oil prices, which are denominated in the U.S. currency, as it makes the commodity more expensive for holders of euros, yen and other units.

While some analysts had tied oil’s moves earlier in the year to the performance of equity markets, particularly in the U.S., Citi Futures analysts said in note late Friday that action for the dollar had now become a bigger factor for crude.

“In terms of the oil market’s habitual correlations, the recent price action — both on the way down and in Friday’s recovery — was the inverse relationship with the U.S. dollar rather than the leadership of the S&P 500.” they wrote.

Other energy futures mostly tracked the selloff in crude, as April gasoline  gave up 4 cents for a 1.2% drop to $3.13 a gallon, while April heating oil  saw a 3-cent retreat, about 1%, to $2.91 a gallon.

April natural gas  went the other way, however, rallying 5 cents, or 1.2%, to $3.92 per million British thermal units. The gain extended a 6.7% advance the previous week, helped by a larger-than-expected drop in U.S. natural-gas inventories for the week ended March 8.

Citi Futures analysts said the nat-gas contract was picking up support from current North American weather patterns, particularly “what has proven to be a stable pattern of cooler-than-normal temperatures.”

“Based on the cold, our model now suggests that storage [of natural gas] could fall below the five-year average benchmark for the first time since September 2011 by the end of March,” Citi Futures said, though adding that the comparison levels were skewed by high storage levels in recent years.

Marketwatch