Crude futures drop below $77/bbl as storm worries ease
American Petroleum Institute will report inventory data on Tuesday afternoon
By Polya Lesova, MarketWatch
FRANKFURT (MarketWatch) -- Crude futures fell 2% to trade below $77 a barrel, as sharp declines in global equity markets and diminishing worries over a storm in the Gulf of Mexico encouraged investors to sell oil.
Light sweet crude for August delivery dropped $1.54 to $76.71 a barrel in electronic trading on Globex. Earlier, the contract hit an intraday low of $76.22 a barrel.
The main reasons for the losses were "the sagging stock markets in Asia and an increasing risk aversion," wrote analysts at Commerzbank AG in a note.
In an environment of so-called risk aversion, investors tend to avoid assets perceived as risky, such as stocks and commodities.
European equities posted broad-based losses, tracking declines in Asian markets. U.S. stock futures also pointed to a sharply lower opening on Wall Street.
Investors sought a haven in the perceived safety of the U.S. dollar, which gained against its major rivals. The euro dropped 0.7% to $1.2193.
The dollar index (DXY 86.10, +0.45, +0.52%) , which tracks the performance of the greenback against a basket of major currencies, rose 0.6% to 86.146. The dollar's strength typically weighs on dollar-denominated commodities such as oil and gold.
"Furthermore, the risk of production losses in the Gulf of Mexico seems to be averted," the Commerzbank analysts said. Tropical Storm Alex is expected to become a hurricane, but it will likely not affect oil production in the gulf, according to forecasts.
"Due to the high inventories, short-term production losses can be compensated for anyway," Commerzbank said.
Alex is slowly strengthening as it moves over the southwestern Gulf of Mexico, the National Hurricane Center said on Tuesday morning. A hurricane warning is in effect for the coasts of Texas and Mexico, meaning that hurricane conditions are expected some time in the next 36 hours, the center said.
The American Petroleum Institute will report data on inventories at 4:30 p.m. Eastern. Analysts expect a decline of 1.1 million barrels in crude supplies for the latest week.
The Energy Information Administration will release separate supply data on Wednesday morning.
