Oil slips below $65 as strong dollar offsets Middle East turmoil

Futures slid as much as 0.9 percent in London. The dollar strengthened to a four-week high against the euro following comments from U.S. Federal Reserve Chair Janet Yellen on May 22 that it would be "appropriate” to raise interest rates this year if the economy improves. Iraq’s prime minister pledged a swift recapture of the city of Ramadi from Islamic State militants, while in Saudi Arabia King Salman vowed to punish those responsible for a suicide attack on Shiite worshipers.

Oil’s recovery from a six-year low in January has stalled this month amid speculation rising prices will encourage output from shale formations, while U.S. supply remains near a record. The Organization of Petroleum Exporting Countries, which pumps 40 percent of the world’s oil, is seen sticking with its strategy of favoring market share over supporting prices when it meets next week.

"Brent is not falling off a cliff, but being dragged lower by the strong dollar,” Bjarne Schieldrop, chief commodities analyst at Oslo-based SEB AB, said by e-mail. "Unrest in the Middle East and North Africa support the price.”

Brent for July settlement fell as much as 60 cents to $64.92 a barrel on the London-based ICE Futures Europe exchange and traded at $64.93 at 9:05 a.m. local time. Total volume was about 59 percent below the 100-day average for the time of day. The European benchmark crude traded at a premium of $5.52 to West Texas Intermediate, the U.S. marker grade.

Mideast Violence

WTI for July delivery was at $59.41 a barrel in electronic trading on the New York Mercantile Exchange, down 31 cents from the May 22 close. There was no floor-trading session Monday because of the Memorial Day holiday and transactions will be booked Tuesday for settlement purposes. Prices, little changed in May, have gained 12 percent this year.

The U.S. currency gained 0.8 percent to $1.0895 per euro. A strong dollar makes raw materials priced in the U.S. currency less attractive as a store of value.

Iraq will retake Ramadi, about 70 miles (113 kilometers) west of Baghdad, "within days,” Prime Minister Haidar Al-Abadi told the BBC in an interview Monday. 

Forces were gathering in preparation for the offensive, according to Jafer al-Husseini, a spokesman for a pro-government Shiite militia group.

In Saudi Arabia, Islamic State claimed responsibility for the Friday bombing that killed 21 in the oil-rich Eastern Province. The attack comes as the kingdom leads a military intervention against Shiite rebels in Yemen and participates in U.S.-led operations in Syria.

OPEC Supply

Saudi Arabia, OPEC’s biggest producer, led a November decision by the group to maintain its output quota at 30 million barrels a day. Its 12 members pumped 31.3 million barrels a day in April, exceeding that target for an 11th consecutive month, a Bloomberg survey of companies and analysts showed.

OPEC will probably maintain its output quota at a June 5 meeting, a Bloomberg survey showed.

U.S. crude inventories were at 482.2 million barrels in the week ended May 15, more than 100 million above the five-year average for this time of year, according to the Energy Information Administration. While the number of active oil rigs in the nation has fallen by more than half since December, production remains near the fastest pace in more than 30 years.

In China, President Xi Jinping said strategic oil reserves are significant to the country and called for an increase in stockpiles, the official Xinhua News Agency reported on Weibo, citing his comments during a visit to Zhejiang province. The nation is the world’s largest oil consumer after the U.S.

 

(Bloomberg)