By Grant Smith and Christian Schmollinger Sept. 18 (Bloomberg) -- Crude oil fell for a second day, paring its weekly gain, as the dollar strengthened against the euro and dimmed the hedging appeal of commodities. Crude is nonetheless heading for a 3.7 percent increase this week, a second straight weekly gain, after data showed an expansion in housing starts and industrial capacity utilization in the U.S. The country’s supplies of distillate fuel are at their highest in 26 years, according to the Energy Department. “We have the dollar consolidating after its losses and that’s causing the reversal of gains in oil,” said Andrey Kryuchenkov, an analyst with VTB Capital in London. “The market is pausing, as we’ve yet to see seasonal demand kick in the product market.” Crude oil for October delivery fell as much as 85 cents, or 1.2 percent, to $71.62 a barrel in electronic trading on the New York Mercantile Exchange. It was at $71.73 a barrel at 9:09 a.m. in London. Futures have risen 62 percent this year. The dollar traded for $1.4671 per euro at 9:07 a.m. London time, rising from near a one-year low, after the European Union said yesterday “restructuring of the banking sector must take place,” in proposals to be put forward at next week’s Group of 20 nations meeting in Pittsburgh. Housing starts in the U.S. rose in August to the highest level in nine months, led by construction of multifamily dwellings, a Commerce Department report yesterday showed. “What we’ve had recently is a lot of relatively good U.S. economic data,” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. “Housing starts were slightly positive, building permits a little more so, and initial jobless claims were down.” Stockpiles Still Ample The number of Americans filing first-time claims for jobless benefits fell unexpectedly last week, a sign the labor market is deteriorating at a slower pace. Applications dropped by 12,000 to 545,000 in the week ended Sept. 12, from a revised 557,000 the week before, Labor Department data showed yesterday. Gains in oil prices this week have been tempered by still- ample U.S. inventories. Stockpiles of crude oil in the U.S. dropped 4.73 million barrels to 332.8 million last week, the Energy Department said Sept. 16. Those inventories are still “above the upper boundary of the average range for this time of year,” its report showed. Supplies of distillate fuel climbed 2.24 million barrels to 167.8 million, the highest since January 1983 and 24 percent more than the five-year average. Gasoline inventories rose 547,000 barrels to 207.7 million last week, the department said. Brent crude oil for November settlement traded at $70.85 a barrel on the London-based ICE Futures Europe exchange, down 70 cents, at 9:08 a.m. London time.

Source