U.S. crude oil plummeted to end sharply lower on Tuesday, ahead of the official weekly oil supply report from the Energy Information Administration. Crude oil was severely impacted after the dollar strengthened against a select band of currencies on concerns over Greece and an imminent rate hike by the Federal Reserve.
A strong dollar generally makes it unattractive to buy dollar-denominated commodities as it makes them more expensive to holders of other currencies.
Crude oil prices continued to plunge through the morning as the dollar strengthened against the rapidly fading euro. The buck rose to $1.0780 versus the euro, its highest since September 2003, amid speculation the Federal Reserve will soon raise interest rates.
Dollar-denominated commodities have been hurt in the process, with crude oil having dropped to near $44 a barrel, a six-year low.
Meanwhile, the U.S. Energy Information Administration on Tuesday cut its forecast for WTI crude and now expects average prices at $52.15 a barrel for 2015, against its prior outlook averaging $55.02 a barrel.
The EIA predicts an average price of $70 a barrel in 2016, down from its previous outlook of $71 a barrel. The EIA projects U.S. crude oil production to average 9.3 million barrels per day in 2015 and 9.5 million barrels per day in 2016.
The U.S. Energy Information Administration is scheduled to release its weekly oil report on Wednesday, which is expected to show an increase in inventories for a ninth week in a row. Industry group, the American Petroleum Institute is expected to release its weekly inventories report late Tuesday.
Light Sweet Crude Oil futures for April delivery, the most actively traded contract, plunged $1.71 or 3.4 percent to settle at $48.29 a barrel on the New York Mercantile Exchange Tuesday.
Crude prices for April delivery scaled a high of $50.36 a barrel intraday and a low of $48.24.
On Monday, crude oil gained $0.39 or 0.8 percent to settle at $50.00 a barrel, on a weak dollar and on hopes of increasing demand with China’s oil import rising in February.
The dollar index, which tracks the U.S. unit against six major currencies, traded at 98.45 on Tuesday, up from its previous close of 97.66 on Monday in late North American trade. The dollar scaled a high of 98.60 intraday and a low of 97.78. The dollar scaled its highest in the last one year intraday.
The euro trended lower against the dollar at $1.0722 on Tuesday, as compared to its previous close of $1.0852 on Monday in late North American trade. The euro scaled a high of $1.0857 intraday and a low of $1.0699, the lowest in the last one year.
On the economic front, wholesale inventories in the U.S. increased more than expected in January, a report from the Commerce Department showed Tuesday, with the report also indicating a sharp drop in wholesale sales. Wholesale inventories edged up by 0.3 percent in January after coming in nearly unchanged in December. Economists expected inventories to inch up by just 0.1 percent.
China’s inflation accelerated more than expected from a five-year low in February, but producer prices declined the most since late 2009, underscoring the persistent risk of deflation. Inflation rose to 1.4 percent in February from 0.8 percent in the prior month, data from the National Bureau of Statistics showed Tuesday. It was forecast to increase moderately to 1 percent.
Separately, the National Bureau of Statistics said producer prices declined for the 36th consecutive month in February weighing heavily on profit margins of companies. Industrial producer prices were down 4.8 percent from last year, which was bigger than a 4.3 percent fall seen a month ago. Economists had forecast prices to fall by 4.3 percent. This was the biggest fall since October 2009.
French industrial production grew unexpectedly in January from the prior month, statistical office Insee said Tuesday. Industrial production rose 0.4 percent month-on-month, defying expectations for a 0.3 percent fall. This was the second consecutive rise in output. Nonetheless, the rate of growth was weaker than the revised 1.4 percent expansion seen in December.
The material has been provided by InstaForex Company – www.instaforex.com