You are here
Oil falls for a second day as investor risk appetite wanes
[LONDON] Oil slipped for a second day on Tuesday, driven by ongoing evidence of rising US crude output, while wary investors sold off stocks, bonds and commodities.
Brent crude futures were down 46 US cents on the day at US$69.00 a barrel by 1430 GMT, having touched a session low of US$68.75, while US West Texas Intermediate futures fell US$1.00 to US$64.56 a barrel.
US blue-chip stocks opened under pressure, weighed down by a jump in government bond yields and an earlier rise in the US dollar.
With oil's negative correlation to the dollar reaching its strongest in a month, even continued signs of robust demand for crude were not enough to ward off profit taking following last week's rise to three-year highs.
"I do have the feeling that market optimism pushed prices perhaps a little bit too high, but ... as long as (inventories) continue to decline, for me, personally, I'm more and more looking at a 'buy-on-dips' strategy, so I'm looking for a correction lower," ABN Amro chief energy economist Hans van Cleef said.
Oil's inverse relationship to the US dollar, whereby a stronger currency makes it more expensive for non-US investors to buy dollar-denominated assets, has reasserted itself this week.
"Correlations are funny things. Sometimes they work and sometimes they don't. For most of 2017, the relationship between the US dollar and the oil price was not obvious," PVM Oil Associates strategist Tamas Varga said in a note.
"This is the trend that seems to be turning, judging by yesterday's price action and this morning's moves. Rising US bond yields caused dollar shorts cover and as a result oil prices fell."
Expectations for US inventories to rise for the first time in 11 weeks may also be keeping oil under pressure, according to a preliminary poll by Reuters on Monday.
US production is already on par with that of Saudi Arabia, the biggest producer in the Organization of the Petroleum Exporting Countries (Opec). Only Russia produces more, averaging 10.98 million barrels per day (bpd) in 2017.
"As drilling activity now picks up again, oil production looks set to increase in the coming months. The US Energy Information Administration (EIA) expects production in the US to grow by just shy of 1 million bpd this year," Commerzbank said in a note.
"Since oil production is also on the increase elsewhere - especially in Canada and Brazil - non-Opec supply is even likely to outpace global demand. This means Opec will lose market shares and have no scope whatsoever for stepping up production."