Oil fell on Tuesday for a second day as a strengthening dollar dented risk-linked assets such as equities and other commodities, together with rising U.S. output, pushing the price below $69 a barrel for the first time in six days.
Brent crude futures fell 20c on the day to $69.26 a barrel by 10.00am GMT, having touched a session low of $68.75, while U.S. West Texas Intermediate futures dropped 51c to $65.05 a barrel, Reuters reported.
After the drop in Apple shares sent Wall Street to its largest one-day fall in five months the previous day, European stock markets were firmly in negative territory as the dollar continued its recovery.
“I do have the feeling that market optimism pushed prices perhaps a little bit too high, but … as long as [inventories] continue to decline, for me, personally, I’m more and more looking at a ‘buy-on-dips’ strategy, so I’m looking for a correction lower,” ABN Amro chief energy economist Hans van Cleef said.
With oil’s negative correlation to the dollar reaching its strongest in a month, even ongoing signs of robust demand for crude were not enough to ward off profit-taking following last week’s rise to three-year highs.
“Correlations are funny things. Sometimes they work and sometimes they don’t. For most of 2017, the relationship between the dollar and the oil price was not obvious,” PVM Oil Associates strategist Tamas Varga said in a note.
“This is the trend that seems to be turning, judging by yesterday’s price action and this morning’s moves. Rising U.S. bond yields caused dollar shorts cover and as a result, oil prices fell.”
Expectations for U.S. inventories to rise for the first time in 11 weeks may also be keeping oil under pressure, according to a preliminary poll by Reuters on Monday.
U.S. production is already on par with that of Saudi Arabia, the biggest producer in oil cartel OPEC. Only Russia produces more, averaging 10.98-million barrels per day (bpd) in 2017.
U.S. output has jumped more than 17% since mid-2016 and is expected to exceed 10-million bpd soon. The rising tide of U.S. oil output comes after prices rose following an agreement by OPEC producers, with Russia and other countries, on output curbs.