Oil prices fell in trading on Tuesday on a rising US dollar and increasing US crude production.
US oil prices down 1.5 per cent
Oil prices fell for a second day on Tuesday on concerns over rising US production and analysts’ expectations that data released late Tuesday and early Wednesday will show an increase in US crude stocks for the first time in 11 weeks.
By 2:28 p.m. EST, Brent crude fell 64 cents to $68.56/barrel, after reaching a session low of $68.39. US WTI was trading down 98 cents to $64.58/barrel. The Canadian Crude Index fell to $37.10.
“Even though the market’s sentiment is strongly bullish, we need to see a good pullback soon that frees up some length for large traders to buy back in again at lower levels. I think we may be seeing that game starting now,” Dean Rogers, senior analyst and general manager at Kase & Co told Reuters.
Along with the decline in oil prices, US blue-chip stocks were under pressure due to a jump in government bond yields and a rise in the US dollar.
The Dow Jones Industrial Average fell as much as 352 points on Tuesday, the steepest intraday point drop since May 17. Reuters reports the decline is mostly due to a rise in bond yields and decline in healthcare companies.
The rising US dollar and profit taking have kneecapped oil prices despite robust demand for crude as a higher-valued greenback makes crude more expensive for non-US investors to buy dollar-denominated assets.
“Correlations are funny things. Sometimes they work and sometimes they don’t. For most of 2017, the relationship between the dollar and the oil price was not obvious,” Reuters reports PVM Oil Associates strategist Tamas Varga said in a note.
“This is the trend that seems to be turning, judging by yesterday’s price action and this morning’s moves. Rising U.S. bond yields caused dollar shorts cover and as a result oil prices fell.”
A preliminary poll by Reuters on Monday shows analysts expect that US crude inventories hhave risen for the first time in 11 weeks, also pressuring oil prices.
On Tuesday afternoon, the American Petroleum Institute will release its data on US crude stocks and on Wednesday morning, the US Energy Information Administration will release its oil inventory data.
According to the EIA, crude production in the United States is expected to top the 10 million barrels per day mark in the coming weeks. US production is already comparable to OPEC heavyweight Saudi Arabia.
Russia is the world’s largest producer of crude, averaging 10.98 million b/d.