Along with everything else, oil is selling off.
AP: Oil prices fell to around $72 a barrel Thursday as investors mulled whether recent signs of recovering crude demand can be sustained next year and the dollar strengthened against other currencies.
By early afternoon in Europe, benchmark crude for January delivery was down 70 cents to $71.96 in electronic trading on the New York Mercantile Exchange.
On Wednesday, the contract surged by $1.97 to settle at $72.66 after the Energy Information Administration said that crude supplies and distillate fuels including heating oil dropped by more than analysts expected.
Some analysts are sceptical that demand growth can continue beyond the middle of next year as the impact of massive government stimulus spending begins to ebb.
London-based Capital Economics expects oil to fall to near $50 a barrel by the end of next year on weaker than expected demand and a stronger U.S. dollar. Investors have often bought commodities such as crude this year as a hedge against inflation.
“As the boost from policy stimulus starts to fade and underlying weaknesses reassert themselves, demand should slow again,” Capital Economics said in a report.
“If we are right that the U.S. dollar resumes its recent recovery and fears of inflation and asset bubbles fade, oil prices should drop back next year too.”
JBC Energy in Vienna noted that the weekly EIA report also contained bearish data and wasn’t as supportive of the spike in crude prices as some may have thought.
The inventory data also contained a fair share of bearish data that seems to have been overlooked,” JBC said in a market report, pointing to lower crude imports as one of the reasons for the drop in crude stocks. “Meanwhile, the strong drawdown in distillates was caused by colder weather and not a rebound in economic activity … Indeed, it will take more of an ice age rather than just seasonal weather to correct this overhang.”
Fluctuations in the dollar’s exchange rate continued to influence oil prices. Commodities priced in dollars become cheaper for investors holding other currencies when the dollar weakens, but a stronger dollar sometimes points investors in other directions.
The release of weekly U.S. unemployment claims later Thursday will be watched closely by the market for signs of how the world’s largest economy is doing.
“The U.S. economic figures could impact the direction of the U.S. dollar, and it looks like the current crude oil price could be quite sensitive to any U.S. dollar movements,” said analysts at Sucden Financial in London.
On Thursday, the euro was near a three-month low, down to $1.4360 from $1.4516 late Wednesday in New York while the British pound slipped to $1.6115 from $1.6310.
In other Nymex trading in January contracts, heating oil fell 1.37 cents to $1.9521 while gasoline fell 1.25 cents to $1.8614. Natural gas rose 8 cents to $5.542 per 1,000 cubic feet.
In London, Brent crude for February delivery fell 65 cents to $73.64 on the ICE Futures exchange.
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