Bloomberg News

Oil Falls First Time in Five Days as Dollar Gains on Euro

July 30, 2012

Oil fell for the first time in five days as the dollar advanced against the euro and amid concern that central bankers will take insufficient action this week to bolster economic growth.

Futures dropped 0.4 percent after the dollar strengthened from a three-week low versus the euro and European economic confidence worsened. U.S. Federal Reserve, European Central Bank and Bank of England policy makers are scheduled to meet this week. ECB President Mario Draghi and U.S. Treasury Secretary Timothy Geithner are holding talks today in Frankfurt.

“The dollar is up quite a bit, which is weighing on the oil market,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “Doubts about what kind of stimulus will be announced this week are beginning to creep into the market. There’s been a buildup of expectations that there will be enormous monetary stimulus, setting us up for disappointment.”

Crude oil for September delivery fell 35 cents to settle at $89.78 a barrel on the New York Mercantile Exchange. Futures are down 9.2 percent this year.

Brent oil for September settlement declined 27 cents, or 0.3 percent, to end the session at $106.20 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade traded at a $16.42 premium to West Texas Intermediate crude traded in New York. It was the widest spread since May 22.

An index of executive and consumer sentiment in the 17- nation euro area dropped to 87.9 this month from 89.9 in June, the European Commission said in Brussels. That’s the lowest level since September 2009.

Spanish Recession

Spain’s gross domestic product shrank 0.4 percent last quarter from the previous three months when it declined 0.3 percent, the National Statistics Institute said today in Madrid. Spain is the fourth-biggest economy in the euro region, after Germany, France and Italy.

The dollar advanced 0.5 percent to $1.2257 per euro at 4:18 p.m. A weaker euro and stronger U.S. currency reduce the appeal of dollar-denominated raw materials as an investment alternative.

“Oil is down a bit today because of modestly bearish economic data and the dollar being a little stronger,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

Geithner and German Finance Minister Wolfgang Schaeuble discussed the need for global cooperation to “achieve sustainable public finances, cut global macroeconomic imbalances and restore growth,” the Treasury said in a statement. Geithner and Schaeuble held talks on the German island of Sylt.

Policy Meetings

The Federal Open Market Committee meets for two days starting tomorrow. The ECB’s Governing Council and the Bank of England’s Monetary Policy Committee will convene Aug. 2.

Policy makers meeting this week are looking for new monetary tools after the Fed lowered its benchmark interest rate to near zero in December 2008 and purchased $2.3 trillion of securities to spur the economy. A government report on July 27 showed U.S. economic growth slowed to a 1.5 percent annual rate in the second quarter as consumers curbed spending.

“Prices will probably not move a great deal in either direction before the release of economic data later this week,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “There are a lot of important figures coming out.”

The pace of hiring in July probably failed to reduce the U.S. jobless rate, which has been stuck above 8 percent for more than three years, economists said before a report this week. Other data this week may show manufacturing stagnated in July and consumer confidence fell for a fifth month.

Japanese Manufacturing

Japan’s industrial production unexpectedly declined and South Korean manufacturers’ confidence dropped to a three-year low in reports today. Output fell 0.1 percent in June from May, Japan’s Trade Ministry said. The median estimate of 29 economists surveyed by Bloomberg was for a 1.5 percent gain. The South Korean confidence index for August was at 70, down from 81 for July, the country’s central bank said.

Japan was the third-biggest oil consuming country last year, after the U.S. and China, according to the U.S. Energy Department. South Korea was the 10th largest.

Electronic trading volume on the Nymex was 357,395 contracts as of 4:17 p.m. in New York. Volume totaled 416,190 contracts July 27 and 25 percent below the three-month average. Open interest was 1.4 million.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net


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