Oil Slumps as Traders Brace for Supply Increase, Stronger Dollar

(Bloomberg) -- Crude held on to losses after an industry report showed U.S. crude stockpiles rose by more than expected last week.

Futures in New York traded near the settlement after the American Petroleum Institute was said to report crude inventories jumped 3.43 million barrels last week. That's larger than the 1.23 million-barrel-rise analysts in a Bloomberg survey were expecting. During the session, the dollar's rise to the highest in more than three months also weighed on crude prices

“We are expecting builds this week. You're still at that standpoint, are we going to start to see demand destruction?” said Tariq Zahir, a commodity fund manager at Tyche Capital Advisors LLC. Today's trading is representative of “U.S. dollar strength, a little bit of equity weakness, risk-off.”

Oil started May on shaky ground after a 5.6 percent rally last month fueled by conflict between Saudi Arabia and Yemen and the impending May 12 deadline for U.S. President Donald Trump's decision on whether to reimpose sanctions on Iran. Israeli Prime Minister Benjamin Netanyahu revealed a trove of documents on Monday that he said proved Iran conducted a secret atomic weapons program.

If sanctions are reimposed, “while it will take oil off the market, I don't think it's going to be a tremendous amount,” Zahir said.

West Texas Intermediate crude for June delivery traded at $67.46 a barrel at 4:37 p.m. after settling at $67.25 a barrel on the New York Mercantile Exchange, the lowest level in two weeks. Total volume traded Tuesday was about 10 percent below the 100-day average.

Brent crude for July settlement slid $1.56 to end the session at $73.13 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $6 premium to July WTI.

U.S. Inventories

The Bloomberg Dollar Spot Index climbed as much as 0.7 percent to the highest since early January.

“The dollar is again putting some selling pressure in the market and we're also seeing expectations that we'll see another week of rising U.S. crude oil inventories,” said Gene McGillian, a market research manager at Tradition Energy in Stamford, Connecticut.

The API was also said to report Cushing, Oklahoma crude stocks rose by 725,000 barrels last week, while gasoline stocks popped higher by 1.6 million barrels. A gasoline build of that magnitude would be the largest since late February if Energy Information Administration data confirms it on Wednesday. Distillate inventories declined 4.08 million barrels, according to the API.

Stockpiles at the biggest U.S. storage complex, in Cushing, Oklahoma, swelled by 1 million barrels as well, according to a forecast compiled by Bloomberg.

Other oil-market news:

• Gasoline futures fell 2 percent to settle at $2.0876 a gallon on Tuesday.
• Goldman Sachs Group Inc. sees a “moderate” response in U.S. shale to higher oil prices and an increasing likelihood that OPEC and Russia will extend their supply cuts through next year.
• OPEC continues to over-deliver on its production cuts, with output falling further last month as the group nears its goal of rebalancing the oil market. The cartel pumped 31.93 million barrels a day, down from a revised 31.97 million in March, a Bloomberg News survey of analysts, oil companies and ship-tracking data found.

--With assistance from Tsuyoshi Inajima and Grant Smith

To contact the reporter on this story: Jessica Summers in New York at jsummers24@bloomberg.net.

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Carlos Caminada

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