Tuesday, May 26, 2015

Oil Prices Decline on Strength of US Dollar
Wall Street Journal
May 26, 2015 3:48 p.m. ET

NEW YORK—Oil prices slipped Tuesday on a stronger dollar and concerns that the recent rally in oil prices could spark an increase in production.

Oil prices have climbed sharply since hitting six-year lows in March on expectations that cutbacks in oil drilling would lead to a decline in U.S. production, shrinking the global glut of oil. However, the market remains oversupplied, and some analysts warn that at these price levels, U.S. producers can profitably keep drilling.

Many market watchers were caught off guard by the recent price rally, and analysts and investors remain split on where oil prices are headed. A continuation of the strong rally could hurt consumers, who have benefited from unusually cheap gasoline, while another drop in oil prices could destabilize oil-producing nations and roil global markets.

Light, sweet crude for July delivery settled down $1.69, or 2.8%, at $58.03 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell $1.80, or 2.7%, to $63.72 a barrel on ICE Futures Europe, the lowest settlement since April 22.

“We’re very well-supplied, that’s the bottom line, and with the dollar the way it’s going, that’s going to be a serious headwind going forward,” said Tariq Zahir, managing member of Tyche Capital Advisors.

The Wall Street Journal Dollar Index, which tracks the dollar against a basket of other major currencies, recently traded up 1%. Oil is priced in dollars and becomes more expensive for holders of other currencies as the greenback appreciates.

Goldman Sachs expects the global oil market to be oversupplied by 1.9 million barrels a day this quarter. “The market now depends on how U.S. producers will respond to the recent rally and whether low-cost producers can sustainably deliver higher production,” the bank said in a note.

Last week, the number of rigs drilling for oil in the U.S. fell by one, according to Baker Hughes Inc., sparking speculation that the drop in drilling activity is nearing an end. Even as the number of drilling rigs has halved in recent months, production has remained steady near multidecade highs.

Gasoline futures settled down 5.56 cents, or 2.7%, at $1.9983 a gallon. Diesel futures fell 5.23 cents, or 2.7%, to $1.9002 a gallon.

Write to Nicole Friedman at nicole.friedman@wsj.com

No comments: