Oil Poised for Second Weekly Drop on Dollar’s Rise Against Euro

May 14 (Bloomberg) -- Crude oil is poised for a second weekly decline as the strengthening dollar curbed the appeal of commodities to investors amid above-average U.S. supplies.

Oil dropped for a fourth day as the U.S. currency climbed against the euro after Portugal announced austerity measures, spurring concern that fiscal tightening across Europe will limit economic growth. The Energy Department said May 12 that crude supplies at Cushing, Oklahoma, where New York-traded West Texas Intermediate oil is stored, rose to a record.

“It looks like the euro zone economy is going to slow by quite a bit, not helping the overall global economy, or that of crude oil demand,” said Mike Sander, an investment adviser at Sander Capital Advisors in Seattle. “Oil is currently fighting a losing battle against the dollar. On the fundamental side, U.S. inventory levels are still at very high levels.”

Crude oil for June delivery dropped 42 cents, or 0.6 percent, to $73.98 a barrel, in electronic trading on the New York Mercantile Exchange at 9:44 a.m. Sydney time. Yesterday, the contract fell $1.25 to $74.40. Futures are poised for a 1.4 percent decline for the week.

Europe’s common currency has dropped 1.7 percent against the dollar this week, following the EU’s plan to shore up the region’s finances. The package included a pledge from the European Central Bank to buy government and private bonds to stem a surge in borrowing costs among so-called peripheral nations such as Greece, Spain and Portugal.

The dollar traded little changed at $1.2536 a euro at 9:36 a.m. Sydney time, after gaining 0.6 percent yesterday.

Crude Stockpiles

Oil also slipped after U.S. equities retreated on widening probes of banks’ mortgage-bond deals. The Standard & Poor’s 500 Index declined 1.2 percent to 1,157.44, and the Dow Jones Industrial Average fell 1.1 percent to 10,782.95.

Stockpiles of crude oil at Cushing rose 784,000 barrels to 37 million, the highest level since the Energy Department began reporting on inventories at the hub in April 2004.

Nationwide U.S. oil supplies gained 1.95 million barrels to 362.5 million, the 14th increase in 15 weeks, according to the department. The increase left stockpiles 6.1 percent above the five-year average for the period, up from 5.4 percent the previous week.

“Builds will continue,” said Jonathan Barratt, managing director at Commodity Broking Services Pty in Sydney. “This is normal as we head into summer drive time. Expect demand to pick up soon.”

Brent crude oil for June settlement declined $1.09, or 1.3 percent, to end the session at $80.11 on the London-based ICE Futures Europe exchange yesterday.