Crude futures fell sharply sending Brent futures in London to a one month low on a robust dollar and growing concern that US shale production would continue to grow.
The greenback rose to an almost eight year high against the Yen and a one month high against a basket of foreign currencies on better than expected US data from manufacturing and housing.
Also aiding the dollar rally was a weakness in the Euro over Greece’s financial volatility and signs of growing opposition to Spain’s austerity measures.
A stronger dollar is bearish for the demand of oil and other dollar denominated commodities as it makes them expensive to holders of other currencies.
“The dollar is the prime factor we’re looking at today,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $3.4 billion, told Bloomberg by phone.
“I see us stabilizing in a $45-to-$55 trading range, with the occasional move into a broader $40-to-$60 range. We should grind lower until we get there.”
Light sweet crude for July delivery slid by $1.57 or 2.63% to $58.44 a barrel on the New York mercantile exchange. This is the lowest the US benchmark has traded in more than a week
Brent for July delivery, the global benchmark, fell y $1.79 or 2.83% to trade at $63.62 a barrel on the London-based ICE Futures Exchange. This is the lowest this contract has been since April 23rd.
Total volume traded was 30% below the 100 day average for the time of day with analysts expecting the prices to recover.
“Oil will need to overcome a growing list of near-term headwinds to continue its recovery. In contrast to the past 2 months, renewed U.S. dollar appreciation weighed on oil last week,” Analysts at Morgan Stanley told Market Watch.
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