Oil Slips as USD Climbs to 2-Month High Ahead of Stock Data

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON(DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange slipped in thin trading Tuesday pressured by a resurgent U.S. dollar ahead of the start of the annual symposium in Jackson Hole, Wyoming, scheduled for Thursday and Friday (8/24-25), where central bankers are expected to chart forward monetary policy amid uneven global growth.

Greenback resumed its recent rally on Tuesday, finishing the session at a 10-week high 103.473 against a basket of foreign currencies as investors raised their bets that Federal Chairman Jerome Powell will deliver a hawkish message during his Wyoming speech. Those expectations were reinforced on Tuesday by Richmond Federal Reserve Bank President Tom Barkin who said that the U.S. economy is likely to accelerate before inflation cools, with implications for the Fed's monetary policy.

"Consumer spending and economic strength make it possible that inflation stays high, and the economy strengthens," Barkin told the Financial Times, adding, "If I got convinced that demand was giving no signal that inflation was going to come down, that would make the case for further tightening of monetary policy through higher interest rates."

Indeed, U.S. retail sales in July jumped 0.7% -- the biggest increase since January, despite the Fed's efforts to bring down aggregate demand, and industrial production accelerated to 1% following declines in previous months.

Looking ahead, Goldman Sachs does not anticipate any immediate relief from the dollar-strengthening trend, especially given recent macroeconomic data in the United States, which will continue to pressure commodity markets.

Also on Tuesday, oil traders await the release of weekly inventory report from the American Petroleum Institute scheduled for 4:30 PM ET followed by official data from the U.S. Energy Information Administration Wednesday morning.

Consensus of analysts and traders surveyed by the Wall Street Journal reveals U.S. commercial crude oil stockpiles likely decreased by 2.4 million bbl for the week ended Aug. 18. Expectations range from a decrease of 4 million bbl to an increase of 1.4 million bbl. If realized, it would mark the fifth drawdown from commercial oil inventories over the past six weeks. At 439.662 million bbl, nationwide oil stockpiles currently stand 1% below the five-year average.

Gasoline inventories are expected to have fallen by 500,000 bbl from the previous week, while stocks of distillates are seen to have risen by 200,000 bbl. Refinery use likely climbed by 0.4% from the previous week to 95.1% of capacity.

Earlier in the session, the oil complex came under selling pressure from reports Iraqi oil minister Hayan Abdel-Ghani arrived in the Turkish capital of Ankara to discuss the resumption of oil exports from the Mediterranean port of Ceyhan. Some 450,000 bpd of Iraqi oil exports from the northern region of Kurdistan have been shuttered following a legal dispute between Baghdad, Ankara, and the Kurdistan regional government nearly six months ago. Such a prolonged disruption risks permanently damaging some of the producing wells in northern Kurdistan, and has already cost its government more than $2 billion, according to official figures released from the Kurdistan Regional Government. Attempts to resume oil exports from Kurdish oil fields were delayed multiple times because of the Turkish presidential elections and the fierce dispute between the central government in Baghdad and KRG. This week's visit may lead to a deal where Kurdistan agrees to a smaller share of the revenues from the oil sales in return for the resumption of the shut-in volumes. The situation remains fluid.

NYMEX WTI September futures expired $0.37 lower at $80.35 bbl, with October WTI futures widening the discount against the expired contract to $0.71 bbl with a $79.64 bbl settlement. The international crude benchmark Brent contract for October delivery settled the session $0.43 lower at $84.03 bbl.

Oil products moved in the opposite direction, with ULSD September futures on NYMEX advancing $0.0226 on the session to $3.1388 gallon and NYMEX RBOB September futures firmed to $2.7891 gallon, up $0.0165.

Liubov Georges can be reached at Liubov.Georges@dtn.com

Liubov Georges