MW: Oil falls amid Italy uncertainty, rising dollar
Citi Futures says Nymex crude could fall as low as $80 a barrel
By Polya Lesova and Michael Kitchen, MarketWatch
NEW YORK (MarketWatch) — Oil futures dropped on Tuesday, pressured by worries over Italy’s inconclusive election results and expectations that data will show a rise in weekly U.S. crude inventories.
Crude oil for April delivery CLJ3 -0.25% retreated 67 cents, or 0.7%, to trade at $92.44 a barrel on the New York Mercantile Exchange.
The contract ended 2 cents lower on Monday. It had started the day with gains but turned lower as Italy’s election results began pointing to an inconclusive outcome, sending the euro lower and the dollar higher. Read: Oil futures slip but settle above $93 a barrel
Meanwhile, London-traded April Brent crude UK:LCOJ3 -0.50% dropped $1.18, or 1%, Tuesday to $113.29 a barrel.
A further gain for the dollar help fuel the losses for both Nymex and Brent crudes, with the ICE dollar index DXY -0.17% rising to 81.805 from 81.766 late Monday in North America. Read more on currencies.
Appreciation in the U.S. unit makes dollar-denominated crude more expensive to holders of other currencies, which can in turn weigh on prices.
Downside risks
Analysts at Citi Futures said oil prices could see significant downside as the European debt situation and political gridlock over the U.S. budget coincide with a well-supplied market.
“Recent bearish developments have arrived at a time when the market was arguably overvalued, and with money managers holding record long positions across the full range of global petroleum markets,” they wrote late Monday.
“Long liquidation could maintain downward pressure on prices for weeks, with risk in nearby [Nymex] crude oil to perhaps $80 and to $100 or less in the Brent market,” they said.
Among events that could move the oil market, Citi Futures cited negotiations over Iran’s nuclear program, but added that with a decisive conclusion unlikely soon, the market impact would be limited.
“Some tried to make a case for bullish suspense over what the outcome might be. However, we think there are some clear indications that the likely new proposal [...] will set the stage for at least another round or two of follow-up discussion,” they said.
Negotiators from the permanent U.N Security Council members and Germany were due to resume talks with their Iranian counterparts in Kazakhstan later in the day. But the Citi Futures analysts said the results could mirror those of last year, when it took three rounds of negotiations before the talks broke up in failure.
Traders are awaiting supply data due from the American Petroleum Institute on Tuesday afternoon and from the Energy Information Administration on Wednesday morning. The data are expected to show a rise of 2.6 million barrels in crude stocks for the week ended Feb. 22, according to a Platts survey of analysts.
Elsewhere in the energy complex, March gasoline RBH3 -2.19% lost 8 cents, or 2.5%, to trade at $2.98 a gallon, while March heating oil HOH3 -1.04% fell 4 cents to $3.06 a gallon.
March natural gas NGH13 +0.15% bucked the trend to rise 0.4% to $3.43 per million British thermal units, extending a string of gains amid forecasts for colder-than-normal temperatures in North America.
Polya Lesova is MarketWatch's New York deputy bureau chief. Follow her on Twitter @PolyaLesova.
Michael Kitchen is Asia editor for MarketWatch and is based in Los Angeles.
