Oil Slips On Strong Dollar, Weak Fundamentals

Oil futures fell further in electronic trade Monday, adding to heavy losses suffered at the end of the previous week, as a rising U.S. dollar and bearish fundamentals delivered a one-two punch to crude.

Benchmark U.S. crude oil for August delivery  slipped 45 cents, or 0.5%, to $93.24 a barrel during East Asia trading hours, after losing 1.5% Friday, and after the previous front-month contract plunged 2.9% Thursday on the New York Mercantile Exchange.

August futures for London-traded Brent crude   weren’t spared either, giving up 52 cents, or 0.5%, to $100.39 a barrel.

The recent losses for crude futures has come amid strong gains for the dollar, which extended its advance Monday as the ICE dollar index  rose to 82.625 from late Friday’s 82.302.

As GFT Markets technical analyst Fawad Razaqzada noted, a strong greenback weighs on oil and other commodities, “due to the fact they are all priced in U.S. dollars, which has been a star performer after [Federal Reserve Chairman Ben] Bernanke signalled the Fed’s intention to withdraw its support … a lot sooner than was apparently priced in.”

“With the case of crude oil, the move has been exacerbated due to on-going demand concerns and the fact supply is, and has been, rising in North America,” he wrote late Friday.

Razaqzada said crude “could fall a lot further over the coming weeks and months. That’s assuming there won’t be any major supply shocks, which is always a possibility given the situation in Syria is deteriorating and that it could easily spread to other countries in the Middle East region.”

Citi Futures analysts agreed with the assessment, adding that oil’s recent tendency to rise and fall with U.S. stocks seems to have ended, and that even correlation with the dollar was weaker than before.

“Often when we see an abrupt shift in price levels, there will be those making the case that prices should rebound because ‘nothing has changed,’” the analysts wrote in a note Friday.

“What has changed, possibly only for the moment but perhaps in a more lasting way, is that the market is now recognizing that those weak fundamentals matter, particularly in a world where correlation trades with the S&P 500  and U.S. dollar no longer support,” they said.

Citi Futures is currently recommending short-selling Nymex crude, with a protective buy stop at $97.30.

Action was mixed elsewhere in the energy complex. Natural gas for July delivery  fell 2 cents, or 0.5%, to $3.75 per million British thermal units, while July gasoline  fell 1 cent to $2.75 a gallon, after a 3-cent loss Friday.

August heating oil  held steady at $2.84 a gallon.

Source : Marketwatch