By John M. Biers
Despite an unexpectedly large decline in U.S. oil inventories,
oil futures dropped slightly Thursday, undermined by a stronger
U.S. dollar and shrinking hopes for aggressive U.S. stimulus
measures.
Light, sweet crude for August delivery settled 44 cents, or
0.5%, lower at $87.22 a barrel on the New York Mercantile
Exchange.
China's central bank and the European Central Bank both cut
interest rates in moves designed to stimulate their economy, which
narrowed the difference between their interest rates and those of
the U.S., making the dollar attractive.
The U.S. Dollar Index, which compares the U.S. currency against
a basket of other currencies, increased 1.26%. Since crude oil is
traded in dollars, a stronger dollar renders oil more costly for
buyers who use other currencies.
"Some of the biggest moves we see in oil are when we get these
rate differentials," said Phil Flynn, senior market analyst at the
Price Futures Group in Chicago, a brokerage firm.
Analysts also said futures prices were weighed down by the
possibility that the U.S. employment picture was improving.
Usually, a low unemployment rate is very bullish for oil,
indicating more people are driving to work and have more
discretionary cash.
But now market participants fear a too rosy outlook will lessen
the prospects of stimulus measures by the U.S. Federal Reserve. Oil
has risen in the past when the Federal Reserve has tried to stir a
stagnant economy.
Analysts and traders pointed to a surprisingly strong jobs
report by payroll processing company Automatic Data Processing. The
group said firms added 176,000 jobs last month compared with the
expectation of a 108,000 gain, according to analysts.
The report came on the eve of Friday's widely watched nonfarm
payrolls report. The stronger job results makes it less likely the
U.S. will undertake another round of quantitative easing to boost
the economy, said Kyle Cooper, a managing partner at IAF
Advisors.
"U.S. petroleum prices have been led much more by macro events
as opposed to being led by the U.S. petroleum data," Mr. Cooper
said.
Despite the bearish signs, oil futures briefly rallied on the
inventory report from the U.S. Energy Information Administration,
which showed U.S. oil stocks fell by 4.3 million barrels in the
week ended June 29 versus the 1.4 million barrel draw anticipated
by analysts -- indicating a tightening of supplies.
The report also showed gasoline stockpiles rose by only 151,000
barrels, less than the rise of 500,000 barrels predicted in the Dow
Jones Newswires survey. Meanwhile, inventories of distillates, such
as heating oil and diesel, fell 1.051 million barrels, compared to
a survey prediction of a gain of 300,000 barrels.
"There was nothing bearish in this report," said Tim Evans, an
analyst at Citi Futures Perspective.
Yet the price rally from the inventory report was short-lived,
in part because market watchers said the result reflected the
one-time effects of Tropical Storm Debby, which disrupted
production in the Gulf of Mexico.
Still, several analysts highlighted that demand for finished
motor gasoline increased to 19.6 million gallons from 19
million.
"We may have started the summer demand season a little late,
but... I believe that we are going to see the summer demand carry
later into the year," said Carl Larry, an analyst at Oil Outlooks
& Opinions, in a research note.
While, U.S. oil futures fell, Brent crude-oil futures, the
European benchmark, strengthened on news that an oil field strike
in Norway was expanding. Prospects of less supply sent Brent
futures up 93 cents, or 0.9%, to $100.70 a barrel at the settlement
on IntercontinentalExchange.
Norway's Statoil said it was preparing to shut down production
as the country's oil industry association disclosed a lockout
starting midnight Monday after talks over a new labor contract
broke down.
Statoil said the shortfall in its production will be around 1.2
million barrels of oil equivalent a day.
Front-month reformulated gasoline blendstock, or RBOB, settled
at $2.76 a gallon, up 4.2 cents. Front-month heating oil settled at
a $2.77 a gallon, up 1 cent.
More information on settlements and highs and lows for futures
on Nymex and ICE platforms can be found by searching for the
following headlines:
Nymex Light Crude Oil Close
Nymex Harbor RBOB Gasoline Close
Nymex Heating Oil Close
ICE Brent Crude Oil Close
ICE Gas Oil Close