BLBG: Oil Falls Below $50 as Equities Decline, Dollar Strengthens
Crude oil fell below $50 a barrel as tumbling equity markets signaled that the recession in major energy-consuming countries may deepen, curbing fuel demand.
Oil fell as much as 6.2 percent after President Barack Obama said that General Motors Corp. and Chrysler LLC have one last, limited chance to “fundamentally restructure.” The dollar strengthened to its highest level against the euro in more than a week, limiting the appeal of commodities as an alternative investment.
“The General Motors news was a rather pointed reminder that the economy and oil demand are nowhere near a recovery,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. “There was a lot of excitement last week because of rising stock prices, which pushed oil prices too high.”
Crude oil for May delivery fell $3.12, or 6 percent, to $49.26 a barrel at 12:14 p.m. on the New York Mercantile Exchange. Futures touched $49.15, the lowest since March 19. Prices are up 10 percent this year.
Prices declined 3.6 percent to $52.38 a barrel on March 27 on signs of a deepening recession in Europe. Oil climbed 0.6 percent last week, the sixth week of gains.
“Crude rallied on the strength of the stock market and the weak dollar,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. “That changed on Friday and we are seeing follow-through today.”
The MSCI World Index lost 3.7 percent to 789.13. The Standard & Poor’s 500 Index declined 3.3 percent to 789.13. The Dow Jones Industrial Average fell 285.86, or 3.7 percent, to 7,490.32.
Dollar Strength
The euro fell against the dollar for a third day on speculation the European Central Bank will cut interest rates to the lowest since the currency’s introduction in 1999. The dollar strengthened 1.1 percent to $1.3144 per euro from $1.3287.
“The stronger dollar and falling equities are a recipe for lower prices,” said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York.
U.S. crude oil stockpiles surged 3.3 million barrels to 356.6 million barrels in the week ended March 20, the highest since July 1993 and 13 percent more than average for this time of year, according to an Energy Department report on March 25. Supplies probably rose 3 million barrels last week, according to the median of six responses in a Bloomberg News survey.
“It’s hard to be bullish with these extremely high inventories,” Bentz said. “We are testing the $50 breakout area today and will soon know whether it is truly support or that the recent rally was a mirage.”
Slack Demand
Global demand remains slack and oil is unlikely to reach $60 a barrel this year, Qatar’s, oil minister, Abdullah Bin Hamad Al-Attiyah, said. Recent oil-price gains were driven by the dollar, not improved supply and demand, Al-Attiyah said in an interview in Kuwait yesterday.
“The international economy is still very weak,” he said. “The crisis has not reached the bottom so we have to be very careful.”
The Organization of Petroleum Exporting Countries will watch for improvement in the global economy when it meets May 28 to decide whether more oil needs to be removed from the market, Iran’s OPEC governor said. The group agreed on March 15 to keep output quotas unchanged, saying members have to cut a further 800,000 barrels a day to comply with existing targets.
“Another cut will depend on the economic situation,” Mohammad Ali Khatibi told Bloomberg News in an interview in Kuwait today. “OPEC is trying to bring stock levels to within the five-year average of about 55 days. Stocks are maybe two days more than the average now.”
Brent Oil
Brent crude oil for May settlement fell $2.60, or 5 percent, to $49.38 a barrel on London’s ICE Futures Europe exchange. Brent touched $49.25, the lowest since March 19.
Hedge-fund managers and other large speculators increased their net-long positions in New York crude-oil futures in the week ended March 24, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 17,637 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 4,130 contracts, or 31 percent, from a week earlier.
