Oil loses steam as dollar, stocks add to shale worries

Bloomberg

After its best January since 2006, the oil market wrapped up the week on a slump as a stronger dollar and weaker stocks added to concerns over booming shale production.
Futures slipped 0.5 percent in New York, with oil inversely tracking the US dollar and American equities headed for the worst week in two years. A stronger greenback reduces the appeal of raw materials as an investment. At the same time, worries over higher shale production added to the downward price momentum.
“The strong jobs report is certainly upping expectations for Fed rate hikes and that’s causing a little strength in the dollar, but is certainly causing some softness in the equity market,” Rob Haworth, who helps oversee $150 billion in assets at US Bank Wealth Management in Seattle, said by telephone. “You are seeing a bit of a risk-off day that’s actually bleeding into the oil market.”
Crude in New York lingers near $65 a barrel, threatening to bring a flood of US shale to the market. A bigger production surge is likelier than most expect, Ed Morse, global head of commodities research at Citigroup Inc., said in a Bloomberg Television interview. Drilling in the US intensified for a second week, with six oil rigs added, according to Baker Hughes data.
West Texas Intermediate for March delivery dropped 35 cents to settle at $65.45 a barrel on the New York Mercantile Exchange. Prices posted a 1 percent decline this week. Brent for April settlement fell $1.07 to end the session at $68.58 a barrel. The global benchmark crude closed at a premium of $3.51 to April WTI, the smallest since August. The S&P 500 Energy Index tumbled almost 4.7 percent, with Exxon Mobil Corp., Chevron Corp. and Hess Corp. all dropping more than 5 percent. The dollar rose after US payrolls and average hourly earnings beat estimates and prior results were revised higher. The Bloomberg Dollar Spot Index added as much as 1 percent.
US output surged above 10 million barrels a day for the first time in more than four decades in November, the Energy Information Administration reported earlier this week. Weekly production is also at a record-high level. Oil has been tracking the dollar all week “and all of a sudden, oil prices are under pressure,” said Gene McGillian, a market research manager at Tradition Energy in Stamford, Connecticut, in a telephone interview. Meanwhile, “in the back of traders’ minds is the data that came out that showed US crude
production jumped above 10 million barrels a day back in November.”