By Virginia Harrison, MarketWatch
NEW YORK (MarketWatch) — Crude-oil futures erased gains notched in the Asian and European trading sessions Friday, as the dollar improved against the euro and as traders saw little reason for a rebound after the prior session’s surprising supply increase.
The market was struggling to recover from a Thursday plunge after the International Energy Agency’s move to release oil reserves.
Benchmark crude for August delivery CL1Q -0.09% turned down 17 cents, or 0.2%, to $90.85 a barrel, a reversal after having touched $92.34 a barrel in Asian trading.
The release of strategic reserves weighed on energy stocks during Asian trading Friday, although reports that Greece has gained European Union and International Monetary Fund approval of its latest five-year austerity plan offered some encouragement about the global growth outlook. Read more about Asian stocks.
Still, the dollar stayed higher against the euro, drawing buyers as currency traders remain nervous about the precariousness of Greece’s debt situation. That puts pressure on commodities priced in dollars. See story on dollar, Greece.
“The immediate market reaction has taken the form of a drift lower in crude prices, with the potential acute tightness in the third quarter being alleviated to some degree,” analysts at Barclays Capital said. “Market participants see this as bearish for prices in the short term.”
On Thursday, oil dropped 4.6%, closing at its lowest level since February, after the IEA said it would release 60 million barrels of oil into world markets in the coming month to counter lost production in Libya. Read about falling oil prices.
It marked the third time in the IEA’s history that its members have decided to release stocks. The United States will release half of the fresh reserves, in a move designed to ease shortages and help counter the global economic slowdown. Read more on the IEA’s move.
Earlier this month, members of the Organization of Petroleum Exporting Countries failed to reach consensus about a production increase and left official target levels the same.
“Since the shortfall from Libya is less than 1.5 million barrels per day, [the IEA’s decision] has helped to offset the disappointment in the market at OPEC’s failure to lift production quotas earlier this month,” analysts at Capital Economics said.
“Our view has always been that oil prices would fall anyway, given the deteriorating prospects for demand and the likelihood that some OPEC members, led by Saudi, would raise output regardless of the formal ceilings,” the analysts said.
Virginia Harrison is a MarketWatch reporter based in Sydney. Deborah Levine in New York contributed to this report.
