Crude Oil Extends Declines as Dollar Strengthens, Supplies Rise

May 6 (Bloomberg) -- Crude oil declined for a third day after the dollar strengthened against the euro, curbing the appeal of commodities to investors, and U.S. inventories increased more than expected as imports rose.

Oil dropped 3.3 percent yesterday as the common currency tumbled to its lowest level against the dollar since March 2009 on concern that Greece’s bailout may have to be extended to other indebted nations. U.S. crude stockpiles rose 2.76 million barrels last week to the highest level since June, an Energy Department report showed. Inventories were forecast to rise 1 million barrels, according to a Bloomberg News survey.

“The Greek crisis appears to be spreading, which is raising concerns about the economic recovery,” said Phil Flynn, vice president of research at PFGBest in Chicago. “Prices have been supported on expectations that demand will climb as economies rebound. Now the focus may return to the market fundamentals and the huge oversupply of oil.”

Crude oil for June delivery dropped as much as 41 cents, or 0.5 percent, to $79.56 a barrel and was at $79.75 in electronic trading on the New York Mercantile Exchange at 8:25 a.m. Sydney time. Yesterday, the contract fell $2.77 to $79.97, the lowest settlement since March 15.

European Central Bank council member Axel Weber said yesterday there is a threat of “grave contagion effects” in the euro area. The dollar traded little changed at $1.2811 a euro at 8:28 a.m. Sydney time, after rising 1.4 percent yesterday. The euro touched $1.2789, the weakest level since March 12, 2009.

Rising Imports

Imports of crude oil climbed 2.8 percent to 9.95 million barrels a day, the highest level since the week ended July 24, the department’s report yesterday showed. Fuel imports surged 9.9 percent to 3.1 million barrels a day, the highest level since the week ended Feb. 5.

Inventories of crude oil at Cushing, Oklahoma, where the New York-traded West Texas Intermediate oil grade is stored, rose 4.9 percent to 36.2 million barrels, the highest level since the department began reporting on supplies at the hub in April 2004.

Refineries operated at 89.6 percent of capacity, up 0.7 percentage point from the prior week and the highest level since May 2008, according to the Energy Department report.

Brent oil for June settlement declined $3.06, or 3.6 percent, to end the session at $82.61 a barrel on the London- based ICE Futures Europe exchange yesterday.