Oil tum­bles as strong dol­lar, over­sup­ply

Kuwait Times - - BUSINESS -

LON­DON: Oil prices fell yes­ter­day, dented by the rise in the US dol­lar to seven-month highs, and an­a­lysts see more losses trig­gered by the mis­match be­tween global sup­ply and de­mand. The fall was part of a wider de­cline in com­modi­ties that has also been stoked by wor­ries over fal­ter­ing de­mand from China, with prices for base met­als such as cop­per and nickel tum­bling. How­ever, spec­u­la­tors have turned in­creas­ingly neg­a­tive on crude.

US West Texas In­ter­me­di­ate (WTI) crude fu­tures fell $1.26 a bar­rel to $40.64 a bar­rel by 0918 GMT. The con­tract broke be­low $40 on Fri­day for the first time since Au­gust. Bench­mark Jan­uary Brent fu­tures were last down 90 cents at $43.76 a bar­rel. “That sev­en­month high (in the dol­lar) flashed a warn­ing sign in peo­ple’s faces that the dol­lar is ap­pre­ci­at­ing,” CMC Mar­kets an­a­lyst Jasper Lawler said.

The US Fed­eral Re­serve is widely ex­pected to de­liver its first rate rise in al­most a decade when it meets next month, while the Euro­pean Cen­tral Bank looks al­most cer­tain to con­tinue to ease mon­e­tary pol­icy. A stronger dol­lar tends to make it more prof­itable for non-U.S. in­vestors to sell their dol­lar-de­nom­i­nated com­mod­ity hold­ings. The break in US crude fu­tures be­low $40 a bar­rel ex­ac­er­bated the pace of the sell­ing, CMC’s Lawler said. “Half of what is hap­pen­ing in WTI is just be­cause we’ve bro­ken that $40 level af­ter hold­ing above it for so long, so Brent has got to fol­low through ... the main tar­get is the (Au­gust) low ... that’s on the cards this week,” he said.

Big hedge funds have in­creased their bets that oil will con­tinue to fall, ac­cord­ing to data from the US Com­mod­ity Fu­tures Trad­ing Com­mis­sion (CFTC) last week. Spec­u­la­tors now hold more po­si­tions that are bet­ting on a drop in the oil price than at any time since at least 2009, ac­cord­ing to Reuters data.

Mean­while, Venezuela’s oil min­is­ter said on Sun­day that OPEC can­not al­low an oil price war and must take ac­tion to sta­bilise the crude mar­ket soon. When asked how low oil prices could go in 2016 if OPEC doesn’t change its pol­icy, he said: “Mid-20s.” Oil prices have halved over the last 12 months af­ter OPEC de­cided to main­tain its pro­duc­tion lev­els, or even in­crease them, to re­tain mar­ket share, in part by forc­ing higher-cost pro­duc­ers else­where to cut out­put. —Reuters

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