By Alexander Kwiatkowski
March 19 (Bloomberg) -- Crude oil dropped for a second day as the dollar rebounded against the euro, cutting the appeal of commodities to investors as an inflation hedge.
Oil fell below $82 a barrel after the dollar advanced against the euro for a second day amid speculation that Greece may fail to secure financial assistance from the European Union. A stronger U.S. currency limits the incentive for investors to buy commodities priced in dollars as a hedge against inflation. U.S. crude inventories rose last week to the highest since August, the Energy Department said March 17.
“Oil is dropping as these persisting Greek jitters push up the dollar against the euro,” said Andrey Kryuchenkov, an analyst with VTB Capital in London. “There is some support at around $80.50 a barrel at the moment.”
Crude oil for April delivery fell as much as 0.8 percent to $81.51 barrel in electronic trading on the New York Mercantile Exchange. It traded at $81.60 at 10:10 a.m. London time. Yesterday, the contract lost 0.9 percent, ending a two-day climb. Futures are set for a 0.5 percent gain this week.
Brent crude for May settlement on the London-based ICE Futures Europe exchange fell 64 cents to $80.84 a barrel at 10:10 a.m. local time.
The dollar traded at $1.3568 against the euro at 10:10 a.m. in London, compared with $1.3608 yesterday. The euro is headed for its biggest weekly decline against the dollar since the start of February.
Crude Stockpiles Rising
U.S. crude stockpiles increased for a seventh week to 344 million barrels, 5 percent above the five-year average, the Energy Department said. Fuel demand declined 4.2 percent to 18.8 million barrels a day, the biggest weekly drop since November.
Seventeen of 38 analysts and traders, or 45 percent, said oil will drop through March 26. Twelve respondents, or 32 percent, predicted that futures will climb and nine said there will be little change in prices. Last week, 46 percent of respondents predicted there would be a decline in futures.
Banks including Goldman Sachs Group Inc. and Barclays Capital expect crude oil prices to move into so-called backwardation in coming months, where oil for prompt delivery trades at a higher price than contracts for delivery in subsequent months.
Prompt oil prices have been at a discount to future prices, a market condition known as contango, since the second half of 2008. The situation may reverse as declining stockpiles boost prompt prices, the banks say. Gasoil futures in London moved into backwardation earlier this month.
Source: http://www.businessweek.com/news/2010-03-19/oil-is-little-changed-amid-concern-u-s-fuel-demand-has-dropped.html
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