Oil’s slowing down as danger signs flash ahead.
Futures are on course for their biggest drop in seven weeks amid concern an investor frenzy for risky assets may be overextending markets, while a weak dollar that had lifted commodities is gaining back some strength as Treasury yields advance. Sentiment is also being hurt as American crude inventories were forecast to expand for the first time in 11 weeks, ending a record run of declines.
While oil has risen more than 7 percent this year as OPEC and its partners trim supply to reduce a global inventory overhang, speculation is rising that the rally may encourage growth in U.S. output, which is already at the highest level in more than three decades. Meanwhile, the greenback is recovering from the lowest level in three years as Treasuries extend their selloff at the start of a pivotal week of data and events.
“If the bond selloff continues and the U.S. dollar rallies, oil is vulnerable after such a strong rally,” said Ric Spooner, a Sydney-based analyst at CMC Markets. “It’s too early to call the end of this oil rally but the weight of gravity suggests the greater risk is to the downside in the short term.” The trend in U.S. production will be a key focus for markets, he said.
West Texas Intermediate for March delivery lost 66 cents, or 1 percent, to $64.90 a barrel on the New York Mercantile Exchange at 4:51 p.m. in Tokyo. Prices headed for their biggest decline since Dec. 12. The U.S. benchmark crude fell 58 cents to close at $65.56 on Monday, after jumping 4.4 percent last week. Total volume traded was about 84 percent above the 100-day average.
Brent for March settlement was at $69 a barrel on the London-based ICE Futures Europe exchange, down 46 cents. Prices fell $1.06 to settle at $69.46 on Monday. The global benchmark crude traded at a premium of $4.08 to WTI.
U.S. crude inventories probably rose by 800,000 barrels to 412.4 million last week, according to Bloomberg survey before Energy Information Administration data on Wednesday. Stockpiles fell to 411.6 million barrels through the week ended Jan. 19, the lowest level since February 2015. Nationwide oil production climbed to 9.88 million barrels a day in the week ended on Jan. 19, the highest level in weekly EIA data since 1983.
The 10-year Treasury yield has risen to 2.71 percent, the highest level since April 2014. By week’s end, traders will have absorbed U.S. President Donald Trump’s State of the Union address, Janet Yellen’s final meeting as Federal Reserve chair, details on the Treasury’s plan to cover wider deficits, and the latest read on the U.S. job market. The Bloomberg Dollar Spot Index was up 0.2 percent after jumping 0.3 percent Monday.
Other oil-market news:
Exxon Mobil Corp. is set to invest $50 billion over the next half decade in a program that includes the Permian Basin of West Texas and New Mexico, a hotbed of U.S. shale drilling. The majority of OPEC’s members agree that cuts should be maintained until the end of the year, Iraqi Oil Minister Jabbar Al-Luaibi said in London. Suncor Energy Inc. said Monday that the project in northern Alberta has completed its test runs and is transitioning to continuous operation.