By Alison Sider, Neanda Salvaterra, and Jenny W. Hsu
Crude prices sold off for a second day Tuesday, weighed down by an appreciating dollar and concerns that U.S. government data due out Wednesday will show that oil and fuel inventories are still growing.
U.S. crude futures fell 84 cents, or 1.58%, to $52.17 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell 67 cents, or 1.2%, on ICE Futures Europe.
The Wall Street Journal Dollar Index, which tracks the dollar against a basket of other currencies, was recently up 0.44%. Oil is priced in dollars and it becomes more expensive for holders of other currencies as the greenback appreciates.Oil investors are still weighing the likelihood that the Organization of the Petroleum Exporting Countries will bring supply and demand into balance against the prospects for increased production elsewhere and persistently high crude inventories in the U.S. Oil prices rose sharply after OPEC and other major producers agreed to cut output by almost 2% last November, but have rarely broken out of a narrow $52-to-$54 range since the start of the year.
"To some extent the bull case for oil is already priced to perfection," said Bill O'Grady, chief market strategist at Confluence Investment Management. "You're kind of assuming OPEC is going to do what it's supposed to do and demand will hold up and you'll be able to justify these prices."
Still, many investors are wagering that the rally isn't over. They have piled into bets on rising oil prices in recent weeks, building record-high net bullish positions in Brent and U.S. crude futures. Some analysts have suggested that the big bets by speculative investors could make the market vulnerable to a cascading selloff.
"Traders are betting on prices going up but they are impatient," said Amrita Sen, the chief oil analyst at Energy Aspects. "They need to see the proof in the data, which might be a few months away."
If fully implemented, the deal could wipe out about 1.8 million barrels a day from the global daily supply and push the market into a supply shortage as early as the third quarter of 2017.
So far, some early data has indicated that OPEC members have stuck more closely to their output quotas than many had anticipated. The U.S. Energy Information Administration said Tuesday that "global oil markets appear closer to balance than at any time in the recent past."
But investors remain wary of rising output from countries outside the deal, including the U.S., which could wipe out the gains made by OPEC's supply action. U.S. drillers put 17 more oil rigs to work last week, according to oil-field services company Baker Hughes Inc., bringing the total to 583.
In the short term, traders and analysts are eyeing the uptrend in U.S. oil drilling and stockpiling of crude and petroleum products. Analysts and traders surveyed by The Wall Street Journal forecast U.S. crude inventories rose by 2.5 million barrels in the most recent week, while gasoline stocks rose by 1.1 million barrels.
"We're coming to this reality that there's a lot of oil supply in the U.S. and we're heading into refining and maintenance season," said Carl Larry, director of oil and gas at Frost & Sullivan. "We're figuring out that regardless of what OPEC does, it's not going to change the fact that we're going to continue to build stocks here."
Analysts at Rittberbusch & Associates cited "a vastly oversupplied gasoline market as providing major downward pull on crude values."
Gasoline futures hit their lowest level in two months, falling 2.28 cents to $1.4875 a gallon. Diesel futures fell 1.31 cents, or 0.8%, to $1.6221 a gallon.
Official data from the Energy Information Administration is slated for release on Wednesday.
The American Petroleum Institute, an industry group, said late Tuesday that its own data for the week showed a 14.2-million-barrel increase in crude supplies, a 2.9-million-barrel rise in gasoline stocks and a 1.4-million-barrel increase in distillate inventories, according to a market participant.
Write to Alison Sider at firstname.lastname@example.org and Jenny W. Hsu at email@example.com
(END) Dow Jones Newswires
February 07, 2017 17:03 ET (22:03 GMT)
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