Oil dipped below $69 dollars today on a strengthened dollar and a governmental report citing an increase in gasoline inventories.
"Today has been a reaction to the build in the products stocks in the weekly DOE report that came out this morning," said Rick Mueller, director of petroleum markets with Energy Security Analysis Inc. in Wakefield, Massachusetts. "We had a pretty strong gasoline and distillate build that overshadowed somewhat the crude draw."
Crude oil settled at $68.67 a barrel Wednesday on the New York Mercantile Exchange for August deliveries, a drop of 57 cents from the close yesterday. Intra-day trading saw crude prices dip to a low of $68.06 a barrel. Natural gas settled slightly lower at $3.761 mmBtu for July delivery and $3.906 mmBtu for August delivery.
"I think folks are maybe getting a little more nervous about demand trends here in the US," continued Mueller. "We've had several product builds over the last couple of weeks, suggesting maybe the gasoline season won't be as strong as in the past and maybe some of the earlier strength in the price value has been overdone."
Additionally, the Federal Reserve reported today that it would not increase the $1.75 trillion bond-purchase program, which resulted in a strengthening of the US dollar against other currencies.
"When the dollar strengthens, then that tends to encourage some folks to get out of commodities and into the dollar with their investment; there tends to be a negative correlation between the two," added Mueller. "The dollar currencies become a more attractive investment vehicle as the dollar rises, and you get some capital flows out of commodities then."
After reaching the 2009 high on June 11 of $73.23, the price of crude has been hovering around the $70 mark. This is a drastic decrease from highs nearing $140 last summer, as well as a marked increase from lows below $40 earlier this year.
"It seems like the market has kind of gotten comfortable in a range around $70, a little bit above a little bit below," Mueller said.
"Certainly that's the number that the Saudis and other OPEC members have been pushing this year and the comfortable price as far as they're concerned in order to both encourage investment but also not choke off the economic recovery."
Mueller foresees oil staying in the $70 range for the summer, but the price may decrease at the end of the year.
"I expect at least through the end of the summer you'll probably see prices stay in this ($70) range, and then they may start to soften toward the end of the year because the distillate market is looking really weak; and after the summer driving season, that becomes much more of an influence on price as opposed to gasoline," Mueller concluded.
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