Oil Trades Below $78 on Dollar’s Advance, Forecast Supply Gain

Jan. 21 (Bloomberg) -- Crude oil traded below $78 a barrel after falling to a four-week low as a stronger dollar reduced the appeal of commodities and on speculation oil inventories increased in the U.S., the world’s biggest energy consumer.

Oil dropped yesterday as the dollar climbed against the euro after China took steps to curb lending and as Greece’s bonds tumbled. Prices also decreased on speculation that a government report today will show a third consecutive gain in crude stockpiles.

“We had a very negative turn in macro-economic sentiment linked to the developments in China,” said Toby Hassall, a research analyst at CWA Global Markets Pty in Sydney. “The dollar was sharply higher overnight as well, so those two factors really weighed heavily on the commodities sector overall, including oil.”

Crude oil for March delivery traded at $77.71 a barrel, down 3 cents, in electronic trading on the New York Mercantile Exchange at 11:16 a.m. in Sydney. Yesterday, the contract declined $1.58, or 2 percent, to end the session at $77.74. The February contract, which expired yesterday, fell $1.40, or 1.8 percent, to $77.62.

“Looking at the fundamentals, we’re not seeing substantial improvement in the manufacturing and industrial production sectors in the advanced economies, especially the U.S.,” Hassall said. “Until we see greater evidence of that, I think oil will struggle to make much upward progress.”

Oil Supplies

An Energy Department report today will probably show that crude oil supplies climbed 2.4 million barrels in the week ended Jan. 15 from 331 million the prior week, according to the median of 17 analyst responses in a Bloomberg News survey. Gasoline supplies rose 2 million barrels, the survey showed.

The American Petroleum Institute reported yesterday that crude-oil supplies declined 1.8 million barrels to 328.3 million last week.

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

The dollar traded at $1.4116 per euro at 11:17 a.m. in Sydney, from $1.4106 yesterday. A stronger dollar reduces the appeal of commodities as an alternative investment.

Chinese regulators asked some of the nation’s banks to limit credit after the institutions lent a record 9.59 trillion yuan ($1.4 trillion) last year. Cuts in Greece’s credit rating last month fueled investor concern that the country may be forced out of Europe’s single currency.

Brent crude oil for March settlement declined $1.31, or 1.7 percent, to end the session at $76.32 a barrel on the London- based ICE Futures Europe exchange yesterday.