Oil Falls After Gains in Dollar Erodes Appeal of Commodities

By Gavin Evans

June 8 (Bloomberg) -- Crude oil fell for a second day after the dollar traded near the strongest in a month against the yen, reducing the investment appeal of commodities.

Oil declined as the U.S. currency gained the most versus the yen in more than three months on June 5. The relative strength index for crude rose to 68.81 last week from 51.12 at the end of April, indicating prices may be poised to fall.

“The dollar’s rally has pretty significant implications or consequences for the commodity sector overall,” said Toby Hassall, research analyst at Commodity Warrants Australia Pty in Sydney. Inventories remain high and “it’s not surprising to see oil off a little today,” he said.

Crude oil for July delivery fell as much as $1.09, or 1.6 percent, to $67.35 a barrel on the New York Mercantile Exchange. It was at $67.43 at 2:34 p.m. in Singapore.

The contract dropped 0.5 percent to $68.44 a barrel on June 5 as the dollar gained after a stronger-than-forecast U.S. jobs report. Futures touched $70.32 earlier that session, a six-month high, after the Labor Department’s May report showed the fewest job losses in eight months in the world’s largest oil-consuming nation.

Oil’s pull-back from $70 may reflect some “technical resistance” following a very strong rally in the past two months, Hassall said.

“There’s a difference between a real recovery and a reduced rate of decline,” he said. A price of $60 to $70 a barrel probably reflects the improvement seen so far in the global economic outlook, he said.

Relative strength indexes show how rapidly prices have advanced or dropped during a specified time period. Readings above 70 indicate a price may be poised to fall, and readings below 30 indicate it may be poised to rise.

Brent, Dollar

Brent crude for July delivery declined as much as $1.04, or 1.5 percent, to $67.30 a barrel on London’s ICE Futures Europe exchange. The contract was trading at $67.41 at 2:35 p.m. in Singapore.

Oil also fell as output increased, adding to stockpiles. Daily production from the Kirkuk region of Iraq, OPEC’s third- largest producer, climbed 16 percent to 670,000 barrels on new wells and improved security, news agency Aswat al-Iraq reported yesterday.

New York oil futures have gained 38 percent the past two months and 52 percent so far this year as rising equity markets lifted investor confidence and the falling U.S. dollar boosted interest in oil, metals and other commodities.

Shell Comments

Crude is poised for a “spike” amid a lack of new investments, Jeroen van der Veer, chief executive officer of Royal Dutch Shell Plc, said today.

The global energy industry is facing “severe challenges” and the world needs unconventional energy supplies to meet rising demand, Shell’s van der Veer said at the Asia Oil and Gas Conference in Kuala Lumpur.

“The economy will turn, demand will come back and the overcapacity of supply will disappear” van der Veer said.

The dollar traded at 98.41 yen as of 12:22 p.m. in Tokyo from 98.64 on June 5 in New York where it climbed to 98.89, the highest level since May 8. The dollar was at $1.3987 versus the euro from $1.3968.

Oil prices also gained the past month as U.S. stockpiles declined and the nation’s refiners lifted operating rates to a six-month high before the summer holiday driving season. Holiday motoring coincides with the North Atlantic hurricane season June through November, when tanker traffic and sometimes output in the Gulf of Mexico is disrupted.

A low-pressure system in the southwestern Caribbean is unlikely to develop into a tropical cyclone, the U.S. National Hurricane Center said on its Web site.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net