Oil extends drop as dollar gains, eyes storms
Tropical Storm Hermine moves towards Mexico-Texas border.
September 7, 2010 9:05 by Reuters
Oil extended losses on Tuesday as the dollar strengthened and Tropical Storm Hermine showed no signs of disrupting crude or refining output around the Gulf of Mexico.
U.S. crude for October tumbled as much as 1.2 percent to $73.73 and was down 60 cents at $74 a barrel at 0255 GMT, having extended losses in a three-day session that will include trades logged on Sunday, Monday and Tuesday because of the U.S. Labor Day holiday.
The New York Mercantile Exchange, home to West Texas Intermediate (WTI) crude futures, will issue just one settlement for those three days.
The euro slid on Tuesday from a three-week peak against the dollar as worries about the European banking sector re-emerged, prompting investors to cut risks. The greenback was up 0.4 percent against a basket of currencies.
“The U.S. dollar seems to have stopped to decline, but with the holiday in New York, all markets are going to be very quiet,” said Ken Hasegawa, a commodity derivatives manager at brokerage Newedge in Japan.
“Crude oil to some extent will have influence from financial markets, but it is completely stuck in a range from $70 to $80. It’s very comfortable for everyone.”
Front-month U.S. crude has for most of this year remained between $70 and $80, a range that OPEC says is high enough to foster investment in capacity expansion and low enough to sustain economic recovery.
A stronger dollar reduces the purchasing power of oil users outside the United States.
Asian stocks hovered near one-month highs on Tuesday as investors awaited a flood of Chinese data as early as this week, which is expected to show continued moderation in economic growth in August at the world’s second-largest oil-consuming nation.
ICE Brent for October added 1 cent from Monday’s close to $76.88, partly because of the de-phase caused by NYMEX’s extended session.
Front-month Brent had gained 14 cents on Monday with demand improving in the North Sea physical market as refining margins widen amid expectations that consumption from emerging economies, led by Asia, will increase for the rest of the year.
Tropical Storm Hermine formed early on Monday and was churning toward landfall, potentially as a hurricane, near the Mexico-Texas border, according to the U.S. National Hurricane Center.
“The formation of Tropical Storm Hermine in the southern Gulf of Mexico highlights how rapidly new threats can appear now that we are approaching the peak of the hurricane season,” JP Morgan analysts headed by Lawrence Eagles said in an e-mailed note.
Still, BP Plc, the largest oil producer in U.S.-regulated areas of the Gulf of Mexico, and Shell Oil Co said late Monday that Hermine was not affecting their offshore operations.
Valero Energy Corp said production at its 315,000-barrel-per-day (bpd) Corpus Christi, Texas, refinery was at planned levels, but the plant was preparing for possible rough weather from the storm.
Petroleos Mexicanos, or Pemex, as the Mexican state-run oil company is known, said there were no reports of damage to facilities in or near the Gulf of Mexico after Hermine moved north from the oil-rich Bay of Campeche.
The Gulf is also home to about 30 percent of U.S. oil production, 11 percent of the country’s natural gas output and more than 43 percent of U.S. refinery capacity.
In the Atlantic, the remnants of Tropical Storm Gaston continued to move westward and had a high chance of reforming as a tropical cyclone during the next 48 hours, according to the NHC. Storm models predicted Gaston would move west towards Puerto Rico, the Dominican Republic and Haiti, but it was still too early to determine whether it would enter the Gulf.
(Editing by Manash Goswami)