Crude Oil Falls a Second Day as Dollar Gains, Equities Drop

Nov. 20 (Bloomberg) -- Crude oil fell for a second day as the dollar strengthened against the euro, reducing the appeal of commodities to investors, and equity markets declined.

Oil slipped 1 percent as the U.S. currency advanced for the third time in four days. Stocks and equity futures retreated after European Central Bank President Jean-Claude Trichet said policy makers will withdraw emergency cash gradually to avoid fueling inflation.

“We will take oil prices down another notch because of the strengthening dollar,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois, consultant. “Things are bearish everywhere you look.”

Crude oil for December delivery fell 74 cents to settle at $76.72 a barrel on the New York Mercantile Exchange. Futures advanced 0.5 percent this week and are up 72 percent this year.

The December contract expired today. The more actively traded January contract slipped 58 cents, or 0.7 percent, to end the session at $77.47 a barrel.

“Things aren’t looking good because we’ve been unable to maintain momentum to the upside,” said Michael Fitzpatrick, vice president of energy with MF Global in New York. “There’s a risk that we could test $60. That’s not likely, but I’m sure we’ll test $75 next week.”

Oil dropped 2.7 percent yesterday as the greenback gained and on concern the rally in commodities and equities has outpaced the prospects for economic growth. A weak dollar has bolstered commodities over the past two years as investors purchased raw materials as an alternative investment.

The U.S. currency strengthened 0.5 percent against the euro to $1.4858, from $1.4925 yesterday. The Standard & Poor’s 500 Index slipped 0.3 percent to 1,091.38.

No Justification

“What oil does next depends on U.S. equities and the dollar,” Carsten Fritsch, an analyst with Commerzbank AG in Frankfurt, said by phone. “Fundamentally, the oil price can’t be justified at current levels.”

Total U.S. daily fuel demand averaged 18.6 million barrels in the past four weeks, down 4.1 percent from a year earlier, according to an Energy Department report on Nov. 18.

“Demand is recovering, but it is painfully slow,” said Adam Sieminski, the chief energy economist at Deutsche Bank AG in Washington. “The sectors of the economy that are recovering aren’t the energy-intensive ones. It could be six months from now before you get consistently positive year-on-year demand numbers.”

Brent crude oil for January settlement declined 44 cents, or 0.6 percent, to end the session at $77.20 a barrel on London’s ICE Futures Europe exchange.

Valero Announcement

“Worries about the economy and a stronger dollar have put pressure on oil,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. “The most interesting energy news today was the announcement that Valero is permanently shutting its Delaware refinery. This gave gasoline a little strength today.”

Valero Energy Corp., the largest U.S. refiner, said it will close its Delaware City, Delaware, plant because of mounting losses after the recession eroded demand for gasoline and diesel.

Gasoline for December delivery climbed 1.11 cents, or 0.6 percent, to end the session at $1.9806 a gallon in New York.

Commodities will likely attract a record $60 billion this year as investors seek to diversify their assets, Barclays Capital said in a report. Inflows so far this year are almost $55 billion, more than the previous full-year record of $51 billion set in 2006. Commodity assets under management may rise to $230 billion to $240 billion by the end of the year.

Potential Bubble

Nouriel Roubini said that investors are “chasing commodities” and there is a risk of new asset bubbles emerging as stock markets and commodity prices surge amid record-low lending rates. Roubini is the New York University professor who predicted the global financial crisis.

Part of the increase in oil prices is “money chasing commodities,” Roubini said in a speech in Lisbon today. “There is a risk that oil can rise to $80, $90 or $100 because of speculative demand” that doesn’t reflect economic fundamentals, he said.

Analysts surveyed by Bloomberg News were split over whether crude oil prices will fall or be little changed next week. Ten of 27 analysts, or 37 percent, said futures will drop through Nov. 27. Ten respondents predicted that oil will be little changed. Seven said futures will rise.

Oil volume in electronic trading on the Nymex was 383,077 contracts as of 3:18 p.m. in New York. Volume totaled 630,524 contracts yesterday, 12 percent higher than the average over the past three months. Open interest was 1.17 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.