MW: Crude futures drop on expectations of rising inventories
American Petroleum Institute will report data on supplies on Tuesday afternoon
By Polya Lesova, MarketWatch
FRANKFURT (MarketWatch) -- Crude futures dropped on Tuesday, as the strength of the dollar and expectations of build-ups in U.S. petroleum inventories weighed on sentiment.
Crude oil for June delivery, the front-month contract, fell $1.03 to $83.17 a barrel in electronic trading on Globex. The contract had finished lower on Monday.
The American Petroleum Institute will release data on inventories at 4:30 p.m. Eastern.
Analysts polled by Platts expect an increase of 1.4 million barrels in crude stocks for the week ended April 23. Refinery utilization is expected to fall 0.18 percentage point to 85.72% of capacity.
Gasoline stocks are projected to rise by 500,000 barrels and distillate supplies by 1.2 million barrels, according to the Platts survey of analysts.
The Energy Information Administration will report its more closely watched inventory data on Wednesday morning.
Strong contango
"The pressure on the current spot prices for WTI [West Texas Intermediate crude] has resulted in a strong contango, meaning that the front-month contract for U.S. light crude is more than six dollars cheaper than the six-month contract," said analysts at Commerzbank AG. "Such a gap was last seen in December."
For example, November oil futures are trading above $89 a barrel on Globex, while July futures are above $85 a barrel.
The sharp rise in the so-called forward curve is making the storage of oil attractive again, according to Commerzbank.
U.S. stock futures dropped on Tuesday, as traders awaited the releases of the S&P/Case-Shiller home price index for February, and the Conference Board's consumer confidence measure.
Federal Reserve Chairman Ben Bernanke will speak in front of the National Commission on Fiscal Responsibility. The Fed will announce its decision on U.S. interest rates on Wednesday.
In the currency markets, the euro fell 0.7% to $1.3316. The dollar index (DXY 81.75, +0.27, +0.33%) , which tracks the performance of the greenback against a basket of other major currencies, gained 0.2% to 81.630.
"In the short term, if the dollar's run resumes, we will continue to see headwinds generated for commodity markets," wrote Edward Meir, an analyst at MF Global, in a note to clients.
When the dollar rises, dollar-denominated commodities such as gold and oil tend to decline in value.
