LONDON—Crude futures fell sharply on a stronger dollar and caution ahead of the European Union summit and key U.S. oil inventories data.
Deepening concerns over European sovereign debt levels pushed the dollar to a fresh 10-month high against the euro. This, coupled with a drop in European stock markets, pressured the oil market.
Traders were awaiting data on U.S. oil stocks data compiled by the Department of Energy, due later Wednesday, and whether they will confirm a sharp build in crude oil stocks reported Tuesday by the American Petroleum Institute.
"Strength in the dollar is the main reason but the market is mainly stuck in a range with no real direction," said Glen Ward, an analyst at London Capital Group. U.S. oil stock data might "give the market a direction later," he said.
The front-month May Brent contract on London's ICE futures exchange recently was down $1.32, or 1.6%, at $79.38 a barrel. The front-month May light, sweet, crude contract on the New York Mercantile Exchange was trading $1.33 lower, or 1.6%, at $80.58 a barrel.
The ICE's gasoil contract for April delivery was down $10.00 at $660.25 a metric ton, while Nymex gasoline for April delivery was down 3.46 cents at $2.2282 a gallon.
The euro tumbled against the dollar, in part over talk of a joint International Monetary Fund and EU bailout package for Greece at the upcoming EU summit Thursday and Friday. News that Fitch Rating downgraded Portugal's credit rating to a double-A minus with a negative outlook added to the pressure on the euro.
"We suspect that ultimately, the move to engage the IMF could exert further pressure on the euro, as it will expose the Union's inability to shore up its weaker links without outside help," said Edward Meir, senior commodity analyst at MF Global.
The API Tuesday reported a 7.5-million-barrel increase in crude oil inventories in the week ended March 19, much higher than expected 1.4 million barrels, the mean of forecasts by 16 analysts surveyed by Dow Jones Newswires. The rise was spurred by higher imports and lower refinery utilization, said Vienna-based consultancy JBC Energy.
According to Dow Jones Newswires' survey, gasoline stocks are likely down 1.3 million barrels, while distillates stocks may drop 600,000 barrels.
