Oil Lower on Firm USD

NEW YORK (DTN) -- New York Mercantile Exchange oil futures retreated across the board at the start of regular trade for the next trade week, pressured lower Monday morning by a strong dollar and easing worries about supply outages that boosted the futures complex in recent weeks.

At 9:00 AM ET, NYMEX July WTI crude futures fell by 80cts to $47.61 bbl while the July Brent crude contract on the IntercontinentalExchange dropped 78cts to $47.94 bbl after inside trade. NYMEX June ULSD futures eased 0.78cts to $1.4822 gallon while June RBOB futures slipped 0.90cts to $1.6266 gallon.

On Wall Street, equities were lower while the dollar remained near a seven-week high posted Monday, with a firmer dollar considered bearish for oil futures.

The dollar gained on expectations the Federal Reserve would raise interest rates at its next policy meeting on June 15 as well as on discord between finance ministers from seven most industrialized nations.

The expectation for a rate hike intensified by hawkish comments from James Bullard, president of the Federal Reserve Bank of St. Louis, who said this morning that there were more fundamentals factors supporting a rate hike than for holding rates steady.

Bullard is a voting member of the Federal Open Market Committee, the rate-setting unit of the central bank, so his comments are important than recent opinions by a number of regional Fed officials.

The heads of regional Fed banks in New York, Boston, Atlanta, Richmond and Kansas City have all said they would like to see rate increases of two to four this year.

Also, the minutes of April FOMC meeting released last week showed most of the policymakers were ready to raise rates in June if the economy continues to improve, and since then new data have shown inflation moving back to the 2% targeted by the central bank. Bullard said today that the tight labor market will put upward pressure on inflation going forward.

Meantime, differences emerged on Saturday between the United States and Japan over intervention to stem a recent rise in the yen. Japan wants to ensure the yen doesn't rise since that would hamper its exports growth, while the U.S. also doesn't want the dollar to get too strong because that would American economy.

On supply, the Energy Information Administration last week reported an unexpected increase of 1.3 million bbl for U.S. commercial crude stockpiles to 541.3 million bbl for the week-ended May 13, 12.3% higher than a year ago.

Elsewhere, the wildfires that ravaged Canada's energy heartland of Fort McMurray have been contained with the help of accommodating weather. Canadian officials lifted mandatory evacuation orders on Suncor Energy Inc. and Syncrude Ltd after rain and cold weather helped dampen the flames.

Suncor said over the weekend that a limited number of staff would be back at some of its facilities today to restart production in phases over the next few weeks. Output of 1 million bpd disrupted since May 1 will be gradually brought back on line, the company added.

In Libya, oil cargo loading resumed at the port of Marsa el-Hariga late last week after security issues and disagreements between rival leaders of state oil company caused a three-week hiatus.

Oil traders are also looking forward to the June 2 biannual summit in Vienna of the Organization of petroleum Exporting Countries. Ahead of that meeting, Iran today reaffirmed its intention not to cut or freeze its production, a position that suggests the June OPEC meeting may not act to limit supply.

OPEC members Saudi Arabia, Iraq and non-OPEC producer Russia are expected to increase their respective crude oil output.

From a technical standpoint, the oil futures complex remains on a short term upside trend. NYMEX WTI crude's secondary uptrend continues to strengthen with the spot-month contract posting a new 4-week high of $48.95 bbl last week. Secondary resistance remains at $48.63 while major resistance is up at $59.96, according to DTN analyst Darin Newsom.

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