By Jennifer Yousfi
Oil prices dropped yesterday (Wednesday) as news that oil majors' Gulf of Mexico facilities were unscathed coupled with the dollar's seven-month high against the euro sent crude futures lower.
Light sweet crude oil for October delivery dropped 86 cents to $108.85 per barrel on the New York Mercantile Exchange (NYMEX) yesterday. Oil had traded as low as $107.60 earlier in the day.
Oil prices are down 7% over the past four trading sessions, according to MarketWatch data, and are down 26% from their July 11 record of $147.27.
Back in Production
"," Andrey Kryuchenkov, an analyst at London-based Sucden, told the Bloomberg.
Royal Dutch Shell PLC (ADR: RDS.A, RDS.B) and ConocoPhillips (COP) reported no damage to oil platforms in the Gulf and Exxon Mobil Corp. (XOM) announced workers would be returning to oil platforms outside Gustav's path. The reports of little to no damage put downward pressure on oil prices that had inflated prior to Gustav's passing.
Also, yesterday, the U.S. government released some of its oil reserves in order to make up for any potential shortfall from decreased Gulf oil operations as Hurricane Gustav passed. Late Tuesday, the government announced it was releasing 250,000 barrels of crude stock due to the shutdown.
Oil firms had shutdown their Gulf of Mexico facilities on Tuesday, as a precautionary measure during the storm. The region normally accounts for 25% of U.S. oil production.
"The release of the oil will prevent any shortage and that will, of course, help calm the market," Victor Shum, an analyst with energy consultancy Purvin and Gertz, told AFP.
Meanwhile, the dollar's climb against the euro is making oil more expensive in the 15-nation Eurozone, leading many to think European demand could weaken as the Eurozone economy recorded a decline in gross domestic product in the second quarter.
"The U.S. economy is now looking stronger than Europe's, which is giving the dollar strength and reducing the appeal of commodities," Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts, told Bloomberg News.
The euro declined to $1.4385, its lowest level since Jan. 22, before trading at $1.449 at 2:00 p.m. in New York.
The strengthening greenback is making commodities such as oil less attractive to investors as an inflation hedge.
Ospraie Management LLC, at one time the largest commodities-focused hedge fund, announced it would be closing after losing 38.6% this year. The news could prompt other funds to pare back on commodities holdings, causing oil prices to sink lower.
"The next number we are going to test is $100," Chip Hodge, a managing director at MFC Global Investment Management in Boston, told Bloomberg. "One hedge fund has shut down and the demand picture here has been ugly, so the market will remain under downward pressure."
News and Related Story Links:
- Bloomberg News:
Crude Oil Falls After Gulf of Mexico Platforms Escape Damage
- International Herald Tribune:
Oil futures extend decline amid demand worries