Oil Slips Below $110 on Profit-taking, Stronger Dollar

Posted by Michelle Howard May 28, 2014

U.S. economic data supports views of growth rebound
Libyan oil guards' protest disrupts Hariga port
U.S. crude oil, products inventories seen rising last week

Brent crude oil slipped below $110 a barrel on Wednesday, dragged down by a stronger dollar and profit-taking from a rally driven by geopolitical tensions in Ukraine and Libya as well as positive U.S. demand growth data.

Brent crude gave up gains made earlier in the session to fall 35 cents to $109.67 by 1356 GMT as traders booked profits. U.S. oil also reversed earlier gains to fall 38 cents to $103.73 after closing down the previous day.

Orders for long-lasting U.S. manufactured goods unexpectedly rose and consumer confidence perked up, overnight U.S. data showed, helping push the dollar to an eight-week high.

Commodities are priced in dollars and a strengthening in the greenback often pressures oil as it makes it more expensive.

"We've been close to the highest levels in three months, so on a range basis we've been at the top ... We're range-bound so it would need something substantial to push it out for long," said Michael Hewson of CMC Markets.

"The Ukraine risk premium is beginning to diminish. They have elected a president and as long as there is no major escalation by the Russians, geopolitical factors will recede... Libya is a factor that has been pushing up and down and will at some point just become background radiation."

Uneasy calm returned to Donetsk on Wednesday after a major battle between pro-Russian separatists and government forces in a conflict transformed by the election of a pro-European leader who has vowed to crush the revolt.

Ukrainian aircraft and paratroopers killed more than 50 rebels earlier this week in an assault to retake the airport, unnerving markets and pushing Brent towards $111 a barrel.

In Libya, an armed group has disrupted operations at Hariga port in the east only weeks after it reopened.

But months of turbulence in the OPEC-exporter mean the market has largely priced in the disruption to Libyan supplies.

Countering the Libyan shortfall are rising Iraqi exports.

Oil exports from its southern terminals are on track for a record high in May, according to loading data and industry sources. Shipments have averaged 2.60 million barrels per day in the first 27 days of May, according to shipping data tracked by Reuters.

Supply Outlook
Investors are also awaiting commercial stockpile data from the United States to gauge the country's demand growth outlook.

U.S. commercial crude oil stocks and refined product inventories were expected to have risen in the week to May 23, a preliminary Reuters poll of five analysts showed.

The survey forecast crude oil stocks to have increased 700,000 barrels last week. The survey is taken ahead of weekly inventory reports from the American Petroleum Institute (API), an industry group, and from the U.S. Department of Energy's Energy Information Administration (EIA).

The API and EIA reports are each coming out a day later than normal because of the U.S. holiday on Monday.