Oil Declines as Euro Tumbles Against Dollar on Trichet Remarks

February 3, 2011

 

Bloomberg

Oil fell after European Central Bank President Jean-Claude Trichet signaled no immediate plans to raise interest rates, causing the euro to tumble against the dollar and reducing the investment appeal of commodities.

Oil retreated 0.4 percent after Trichet said the ECB?s benchmark rate, which it left at a record low of 1 percent today, remains ?appropriate.? Prices also declined after failing to break through technical resistance above $92 a barrel, near crude?s two-year high of $92.84.

?Oil prices are taking their direction from expectations of how the global economy is performing,? said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. ?We?re trading on the strength in the dollar and the weakness in equities after our inability to break through technical resistance above $92 a barrel.?

Oil for March delivery dropped 32 cents to settle at $90.54 a barrel on the New York Mercantile Exchange. Futures have gained 18 percent in the past year.
The $92.84 resistance corresponds with a 100 percent retracement on a one-year Fibonacci study.

Brent crude for March settlement fell 58 cents, or 0.6 percent, to $101.76 a barrel on the ICE Futures Europe exchange in London. It was the first decline in five days. Earlier, Brent touched a 28-month high of $103.37 a barrel in intraday trading.

The euro dropped as much as 1.5 percent against the dollar, the most since Nov. 23, after Trichet said ?very close monitoring is warranted? on inflation, at a press conference in Frankfurt.

The euro fell 1.72 cents, or 1.3 percent, to $1.3639 at
3:07 p.m. in New York. The Standard & Poor?s 500 Index fell as much as 0.7 percent in intraday trading. It was up 0.2 percent at 1,307.04 at 3:07 p.m. in New York.

Equities, Dollar

?The equities and the dollar are setting the tone,? said Tim Evans, an energy analyst at Citi Futures Perspective in New York. ?There ought to be a little bit of secondary reflection on the DOE numbers from yesterday and what those really mean.
That was a bearish report and oil went higher, not lower.?

U.S. crude inventories increased by 2.59 million barrels to
343.2 million in the week ended Jan. 28, the Energy Department said yesterday. They were forecast to climb by 2.5 million, according to analysts in a Bloomberg News survey.

There are ?enough supplies? in the market, Shokri Ghanem, chairman of Libya?s National Oil Corp., said in a Bloomberg Television interview with Francine Lacqua today. He indicated that there?s no need yet for OPEC to boost production.

OPEC Production

If oil in New York climbs above $100 a barrel, the Arab producers along the Persian Gulf will probably bolster output, according to a report yesterday by Bhushan Bahree, senior director for global oil at IHS-Cambridge Energy Research Associates. The countries are concerned that elevated prices would curb global economic growth.

OPEC members Saudi Arabia, the United Arab Emirates, Kuwait and Qatar had 3.82 million barrels a day of spare production capacity in January, 70 percent of the group?s total, according to a Bloomberg News survey of oil companies, producers and analysts.

OPEC will raise crude shipments 1.7 percent to 24.16 million barrels a day in the four weeks to Feb. 19 amid strong demand from Asia, according to a report today by tanker-tracker Oil Movements.

Egyptian Unrest

Oil rose as much as 1.3 percent earlier today as six protesters died overnight in demonstrations in Egypt, prompting concern that unrest may spread to other parts of the Middle East and disrupt supplies. Clashes broke out between anti-government groups and supporters of President Hosni Mubarak in Cairo.

?The longer this goes on, the more it could continue to inspire protest movements in other countries,? said Bill O?Grady, chief market strategist at Confluence Investment Management in St. Louis. ?If you?re in Jordan, Lebanon or Saudi Arabia, the longer that goes on, the more you may be thinking, ?Maybe we should do that here, too.??

Saudi Arabia, the world?s largest oil exporter, is ?perfectly unstable,? like Egypt, said Nassim Taleb, author of ?The Black Swan,? and a principal at Universa Investments LP.

His book, a 2007 bestseller, argued that history is littered with rare events that can?t be predicted by trends.

?A perfectly fragile country is a country, say like Egypt? before ?the recent events, where there is no variation and then ? puff ? you got a crisis and it?s mayhem,? Taleb, a New York University professor, told a conference in Moscow hosted by Troika Dialog. ?So Egypt is perfectly unstable, Saudi Arabia, countries like that.?

Oil volume in electronic trading on the Nymex was 622,569 contracts as of 3:09 p.m. in New York. Volume totaled 798,486 contracts yesterday, 14 percent above the average of the past three months. Open interest was 1.54 million contracts, the highest level since November 2007.