Crude futures weaken on strong US dollar, likely build in stocks

New York (Platts)--18Feb2015/416 pm EST/2116 GMT

Crude futures closed lower Wednesday on a stronger US dollar ahead of a weekly US inventory data release expected to show another large build in crude stocks.

The ICE April Brent crude futures contract settled $2 lower at $60.53/b. The NYMEX March crude futures contract ended the day $1.39 lower at $52.14/b.

NYMEX refined products followed crude's path. NYMEX March ULSD futures closed 1.80 cents lower at $1.9594/gal. NYMEX March RBOB futures settled 1.65 cents lower at $1.5736/gal.

The US dollar index was trading higher for most of Wednesday's session. Mounting selling pressure on the greenback coincided with the release of the latest minutes from the US Federal Reserve's Open Market Committee.


The meeting notes showed Fed officials voted in unison last month not to raise interest rates, and appear not to be in any rush to hike rates, CNBC reported. The dollar index fell sharply from 94.5 to 94 before rebounding, paring its loses.

Earlier in the day, two US economic reports were interpreted as bearish. US producer prices fell 0.8% in January, pulled lower by falling energy costs, the Department of Labor said.

And home building slowed in January, as housing starts declined 2% to a seasonally adjusted annual rate of 1.065 million, the Department of Commerce said.

The "US macroeconomic data was somewhat disappointing, but uncertainty over the Greek debt standoff still helped the US dollar to a modest gain, with dollar strength most often associated with commodity weakness," Citi Futures and OTC Clearing analyst Tim Evans said in a note.

US crude inventories are expected to have increased 3.1 million barrels during the week that ended February 13, Platts analysis and a survey of oil analysts showed Tuesday.

Energy Information Administration data showed crude stocks swelling to a record 418 million barrels in the week that ended February 6.

"The market is squaring up for the EIA report, which will probably show a good build," said Robert Yawger, director of the futures division at Mizuho Securities.

The American Petroleum Institute will release its weekly stocks data at 4:30 pm EST (2130 GMT) Wednesday. EIA is scheduled to release its weekly data at 11 am EST (1600 GMT) Thursday.

The release of weekly inventory data was delayed a day because Monday was a US holiday.

The ICE Brent-WTI spread narrowed 52 cents to $7.72/b Wednesday. Still, the spread has widened significantly since mid-January when WTI traded briefly above ICE Brent.

Bulging US crude stocks have weighed on WTI prices, Commerzbank said in a note Wednesday.

"Brent, on the other hand, is profiting from the renewed shift in focus towards supply risks. Libya for example is exporting virtually no more oil [exports] because all its oil terminals are now closed due to the unrest," Commerzbank said.

ULSD BACKWARDATION WIDENS

ULSD March futures settled Wednesday 7.38 cents above April delivery, the largest premium seen for the prompt contract over the second month contract since February 2014.

Cold weather in the eastern US and supply concerns stemming from an ongoing refinery strike are supporting prompt prices, said Sandy Fielden, director of energy analytics at RBN Energy.

"This is classic March-April when the winter ends and heating oil is less in demand, you get a seasonal blip. There is a reduction in heating oil demand because everyone should be thawed out by April," Fielden said.

--Geoffrey Craig, geoffrey.craig@platts.com
--Edited by Keiron Greenhalgh, keiron.greenhalgh@platts.com

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