Singapore: Oil fell more than $1 to below $78 a barrel on Friday, pushed by the stronger dollar after the Federal Reserve raised an emergency lending rate and dampened by higher-than-expected crude inventories in the US.
The Fed’s move to increase the discount rate to 0.75% from 0.50%, citing improvement in financial market conditions, also drove down US stock futures, gold and other commodities.
US crude for March delivery fell to a low of $77.95 a barrel, and was down $1.05 to $78.01 a barrel by 0357 GMT. It had settled at $79.06 the previous day, the highest settlement since 14 January.
London Brent crude for April lost 98 cents to $76.80 a barrel.
“What is undermining oil prices at the moment is the sharp jump in the dollar following the Fed’s announcement,” said Toby Hassall, analyst with CWA Global Markets in Sydney.
“But this is not just about the influence the dollar has on commodities, as there is also the concern of unwinding of stimulus measures, and that could dampen the economic recovery.”
The US dollar rose to a nine-month high against the euro, while the dollar index, a gauge of its performance against six major currencies, rose to its highest level in eight months above 81.250, up almost 1%.
The stronger dollar makes oil and other commodities more costly for holders of other currencies.
Crude Inventory Up
Data released on Thursday by the Energy Information Administration (EIA) showed that crude stocks rose 3.1 million barrels — versus forecasts for a 2.2 million-barrel build — to 334.5 million barrels in the week ended 12 February.
Gasoline stocks were up 1.7 million barrels, but distillates fell 2.9 million barrels.
“The EIA data was very much in line with expectations. Fundamentally, we are still weak. Crude is up, gasoline is up and distillates are down mainly because of the cold weather on the East Coast,” said Clarence Chu, analyst at Hudson Capital.
“If you were to look at employment numbers, people are still losing jobs and we cannot be too upbeat about that. Oil prices neared $80 a barrel, but technically, the resistence level for oil price is around $78.”
Heating oil and gasoline futures also trimmed their gains as crude futures retreated from the day’s high on Thursday. The number of US workers filing new applications for unemployment insurance unexpectedly surged last week, while producer prices increased sharply in January, raising potential hurdles for the economic recovery.
Initial claims for state jobless benefits increased 31,000 to 473,000, the Labor Department said on Thursday, and the economy has lost 8.4 million jobs since recession struck in December 2007.
However, oil could find some support from workers’ strike at six refineries owned by French giant Total, while concerns over Iran’s nuclear programme could also boost sentiment.
The UN nuclear watchdog said on Thursday it feared Iran may now be working to develop a nuclear-armed missile, as Washington warned Tehran of “consequences” for ignoring international demands to stop its atomic plan. Tehran says the programme is for electricity generation.