MW: Oil climbs on weaker dollar, drop in inventories
By Claudia Assis & Kate Gibson, MarketWatch
SAN FRANCISCO (MarketWatch) -- Crude-oil futures rose on Wednesday on a weaker dollar, stronger U.S. stock markets, and a decrease in oil inventories.
Crude-oil futures for July delivery advanced $2.85, or 3.9%, to $74.86 a barrel on the New York Mercantile Exchange.
Prices extended gains after a Department of Energy weekly report showed a drop in oil inventories, even as the DOE's numbers didn't match the much larger decrease a trade group reported on Tuesday and as some of the official data was seen as bearish for prices.
The nation's oil stockpiles fell 1.8 million barrels in the week ended June 4, the DOE's Energy Information Administration reported. Refineries operated at 89.1% of their capacity. Gasoline inventories were unchanged from last week, while distillate stockpiles increased by 1.8 million barrels, the EIA said.
The draw in oil inventories was bearish compared to 4.4 million barrels drop in the same week last year and also smaller than the five-year average decline of 2.2 million barrels for this time of the year, Tim Evans, an analyst with Citi Futures Perspectives, said in a report shortly after the EIA report.
Data on gasoline were also relatively bearish as markets were expecting a decline around half a million barrels. The distillates increase came in larger than expected and above the five-year average gain for the period.
The American Petroleum Institute estimated Tuesday crude stocks fell by 4.5 million barrels last week. Investors had high hopes that the more closely watched data from the EIA would show a similar decline. API numbers often differ from official numbers.
On Tuesday, crude gained 55 cents to finish at $71.99 a barrel after seesawing earlier in the session as traders continued to debate how much the European debt crisis and ample supplies would weigh on sentiment. Global developments have pushed the price of oil down from an 18-month high of $87 a barrel during the past month.
The more bullish case comes on thinking the hurricane season, combined with a offshore drilling moratorium, could push prices up in coming months.
One market strategist, T.J. Marta of Marta on the Markets LLC, noted the potential impact of the BP Plc (BP 33.73, -0.95, -2.73%) oil spill in the Gulf of Mexico.
"Norway has halted all new drilling due to unanswered concerns about the cause for the BP leak. While Britain has ruled out a deepwater moratorium 'for the moment,' Norway's move will add to pressure on the UK for greater caution, and the combined global caution could very well add upward pressure to oil prices going forward," wrote Marta in an early note.
The spill is likely to be at a point investors will see its impact on oil prices, particularly if the DOE numbers show refineries running close to their full capacity, said Tony Rosado, a broker with GA Global Markets in New York.
On Tuesday, the EIA released its monthly short-term outlook for energy markets, which included the agency's preliminary estimates of reductions in production following the six-month deepwater drilling moratorium set in late May after the Deepwater Horizon explosion.
The agency estimated a reduction of on average about 26,000 barrels per day in the fourth quarter of 2010 and roughly 70,000 barrels per day in 2011.
Other energy products were mixed on Wednesday. Natural gas for July delivery declined 6 cents, or 1.3%, to $4.75 per million British thermal units.
The EIA reports on natural gas in storages at 10:30 a.m. Eastern on Thursday.
Reformulated gasoline for July delivery added 5 cents, or 2.4%, to $2.04 a gallon, while July heating oil advanced 4 cents, or 2.3%, to $2.01 a gallon.
Meanwhile, the dollar index (DXY 87.62, -0.78, -0.88%) , which compares the U.S. unit against a basket of six currencies, was 0.9% lower at 87.54.
Stocks opened modestly higher on Wednesday. Read more about stocks. Federal Reserve Chairman Ben Bernanke told Congress the U.S. economy is likely to grow this year and the next, but the pace won't be strong enough to fix the job market and pare down the budget deficit.
