By Georgi Kantchev and Timothy Puko
U.S. oil prices have rebounded and global prices pared losses
Wednesday morning in up-and-down trading strongly connected to the
dollar.
Light, sweet crude for July delivery recently traded up 15
cents, or 0.3%, to $58.18 a barrel on the New York Mercantile
Exchange. Brent, the global benchmark, traded down 53 cents, or
0.8%, $63.19 a barrel on ICE Futures Europe.
Crude futures initially gained ground Wednesday, but fell back
and then took off again, mirroring moves in the dollar. The dollar
pared gains Wednesday morning, with The Wall Street Journal Dollar
Index up 0.2%.
"Crude oil is at the mercy of the dollar index," said Bob
Yawger, director of the futures division at Mizuho Securities USA
Inc. "You've got so many other pieces you would think would be
supportive, but [the market] is totally discounting them."
Following the rout in oil prices last year due to a global
oversupply, fundamentals haven't changed significantly this year
and markets have often taken their cue from the gyrations of the
dollar. Oil is priced in dollars and becomes more attractive to
holders of other currencies when the U.S. currency depreciates.
"With the supply and demand for oil remaining in a stalemate, it
feels like oil prices are sitting ducks, taking hits from external
factors [like the dollar]," said Daniel Ang, analyst at Phillip
Futures.
Market participants are also focusing on the latest data on U.S.
oil supply due this week. The American Petroleum Institute, an
industry group, will release its oil inventory report later
Wednesday with the official estimate by the U.S. Energy Information
Administration following Thursday.
"Another drop in crude stock is expected-volatility could
increase should the data show otherwise either tonight or the
official report from the EIA tomorrow afternoon," said Michael
Poulsen, an oil analyst at Global Risk Management.
Meanwhile, traders continue to watch developments in the Middle
East and oil demand-supply indicators for more cues, especially
since the market is divided over the near-term direction of oil
prices.
"U.S. EIA estimates show seasonally high refining runs and crude
stocks beginning to be drawn down. Nothing else has changed
fundamentally, so it comes as no surprise that prompt prices have
stayed largely centered on $65 for Brent and $60 for WTI," analysts
at Barclays said in a report.
The bank estimates that global oil supplies continue to exceed
global demand by more than 1.5 million barrels a day and while this
disconnect is set to narrow over the course of the year, the
oversupply is far from over.
"Something else has to give, and we maintain that the market is
ripe for a downside price correction," the bank said.
Gasoline futures recently fell 3.23 cents, or 1.6%, to $1.966 a
gallon. Diesel futures fell 1.98 cents, or 1%, to $1.8804 a
gallon.
Write to Georgi Kantchev at georgi.kantchev@wsj.com and Timothy
Puko at tim.puko@wsj.com
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