Oil Lower on Strong US Dollar

NEW YORK (DTN) -- New York Mercantile Exchange oil futures moved lower Friday morning on renewed concerns about oversupply and after data showed inflation rose by the most in 4-1/2 years, boosting the U.S. dollar. The oil futures complex has been volatile for most of this week, with West Texas Intermediate still set to end the week with gains despite Friday's losses.

"As the Energy Information Administration reports that U.S. crude supply hits the highest level in 88 years, OPEC is still trying to get its act together," said analyst Phil Flynn at Price Futures. "Uncertainty in the oil market has led to uncertainty in global markets."

On the economic front, a U.S. Federal Reserve official said this morning that the domestic economy remains strong and interest rates would climb gradually, a move that could reduce liquidity for oil trade.

At 8 a.m. CT, NYMEX March WTI crude futures fell $1.17 to $29.60 barrel, near a near two-day low of $29.57 with traders exiting long positions ahead of the contract's expiration on Monday.

April Brent crude oil futures on the IntercontinentalExchange dropped 93 cents to $33.35 bbl, near a two-day low of $33.25.

In products trade, the NYMEX March ULSD futures contract declined 3.17 cents to $1.0475 gallon, off a two-day low of $1.046. March RBOB futures eased 1.02 cents to $0.9655 gallon, off a one-week low of $0.9552.

On Wall Street, U.S. stock indices were also lower while the U.S. dollar rose to a better than one-week high after the Labor Department reported core inflation—the Consumer Price Index minus volatile components like food and energy—rose by 0.3% in January after advancing 0.2% in December.

The stock market has been taking its cue from oil futures in recent months, and a stronger dollar is bearish for oil futures.

Oil traders continue to focus on bearish fundamentals, with supply running ahead of demand. The oil complex rallied midweek after Saudi Arabia and Russia agreed to freeze their oil production at January levels if other members of the Organization of Petroleum Exporting Countries joined in.

That agreement attracted support from several other OPEC countries including Qatar, Kuwait, and Venezuela, raising hopes OPEC has found a way to stem a further drop in oil prices.

It was also welcomed by Iraq and Iran, but the two countries didn't commit to freezing their own production and it is doubtful Iran would agree to freeze production soon after sanctions were lifted. Moreover, freezing output at January's robust production level doesn't rebalance the oversupplied market.

George Orwel can be reached at george.orwel@dtn.com