BLBG: Crude Oil Falls as Dollar Gains After Fed Raises Discount Rate
By Grant Smith and Yee Kai Pin
Feb. 19 (Bloomberg) -- Crude oil fell for the first day in four after the Federal Reserve raised its discount rate, pushing the dollar higher and damping investor demand for commodities.
Oil pared yesterday’s 2.2 percent rally as the U.S. currency traded at a nine-month high against the euro after the Fed increased the rate it charges banks for direct loans, for the first time in more than three years. Energy Department data showed U.S. crude inventories rose 3.09 million barrels last week, topping a forecast for a 1.73 million-barrel increase in a Bloomberg News survey.
“The decline we’re seeing today is on the stronger dollar after the Fed action and the re-appearance of risk aversion across riskier assets,” said Tobias Merath, head of commodities research at Credit Suisse Group AG in Zurich. “There is an improvement in fundamentals, but we still have an inventory overhang in oil products that’s weighing on refinery margins.”
Crude oil for March fell as much as $1.30, or 1.6 percent, to $77.76 a barrel in electronic trading on the New York Mercantile Exchange. It was at $78.21 at 9:34 a.m. London time.
Yesterday, the contract rose $1.73 to $79.06, the highest settlement price since Jan. 14. Futures are set for a 5.4 percent gain this week.
The dollar advanced for a third day against the 16-nation euro after the Fed raised the discount rate by a quarter point to 0.75 percent. The U.S. currency was at $1.3508 per euro at 9:36 a.m. in London, compared with $1.3527 yesterday in New York. A stronger dollar damps investor demand for commodities.
“The news from the Fed seems to have knocked the oil price off its peak,” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. “My reading of the EIA report was that it was a bit of a mixed bag and not particularly supportive of the oil price.”
Price Survey
Oil may fall next week on rising U.S. inventories and speculation demand will decline next month, a Bloomberg News survey showed.
Twenty-three of 45 analysts and traders polled, or 51 percent, said prices will decline through Feb. 26. Fourteen respondents, or 31 percent, forecast a gain and eight said oil will be little changed. Last week, 50 percent of respondents predicted there would be an increase in futures.
U.S. crude inventories climbed to 334.5 million barrels in the week ended Feb. 12, the most in 10 weeks, according to yesterday’s report from the EIA, the statistical unit of the Energy Department. Total fuel consumption over a four-week period rose 0.2 percent from a year earlier to 19 million barrels a day.
Gasoline stockpiles increased 1.62 million barrels to 232.1 million, the report showed. That’s the highest since March 2008, even as imports dropped and refineries produced less.
Leading Indicators
Oil reached a five-week high yesterday as the New York- based Conference Board’s measure of the economic outlook for three to six months increased for a 10th month.
The series of gains in the leading indicators index is the longest since 2004. Companies stepped up production and asked employees to work longer hours to meet increased demand, which may help spur hiring in coming months.
Brent crude for April delivery fell as much as $1.33, or 1.7 percent, to $76.45 a barrel on the London-based ICE Futures Europe exchange. It was at $76.79 at 9:33 a.m. London time. Yesterday, the contract rose $1.51, or 2 percent, to $77.78, the highest settlement since Jan. 14.
To contact the reporters on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.netGrant Smith in London at gsmith52@bloomberg.net
