Crude futures continued their recent slide Friday, as a higher dollar and lower equities add to a weaker outlook for the economic recovery.
The euro was recently down 1% against the dollar after downbeat comments from the European Central Bank and a downgrade of the French government's 2011 growth forecast. A stronger dollar makes crude more expensive in other currencies. Meanwhile, U.S. equities, which continue to show a close correlation with crude futures, were recently down, with the Dow Jones Industrial Average falling 105 points to 10166.
Rising claims for initial jobless benefits, reported Thursday, along with the Philadelphia Federal Reserve's report of a sharp fall in economic activity in the mid-Atlantic region, are also adding to pressure.
"The Philly Fed index yesterday was not supportive at all, the jobless claims number was not very good at all, and crude has just become a proxy for the economy," said Kyle Cooper, a managing partner with IAF Energy Advisors, in Houston. "It continues to be an equity and dollar play."
Light, sweet crude for September delivery recently traded $1.05, or 1.4%, lower at $73.38 a barrel on the New York Mercantile Exchange, though trading for the contract, which expires today, was extremely light, 14,653 lots having traded so far this morning.
Second-month October prices, the most-actively traded contract, were recently down $1.02, or 1.4%, to $73.75.
October Brent crude on the ICE futures exchange traded $1.08 lower at $74.22 a barrel.
With Thursday's 1.3% drop in futures, crude has fallen for 10 of the past 12 sessions, down from a high above $82 last week as weak economic reports left traders worried about future crude demand. On Wednesday, the Department of Energy said U.S. company-held inventories of oil and oil products are at the highest level in nearly 27 years.
Product supplies also remain well above average. Stocks of distillate, which includes heating oil and diesel fuel, are at the highest level since 1983, and 7.8% higher than a year ago.
Meanwhile, gasoline stocks are 6.5% above last year's levels. The high inventories during the important summer driving season have pushed down gasoline prices.
Front-month September reformulated gasoline blendstock, or RBOB, recently traded 1.33 cents, or 0.7%, lower at $1.9154 a gallon after falling as low as $1.9085 in earlier trading--the lowest price since May.
September heating oil recently traded 2.51 cents, or 1.3%, lower at $1.9756 a gallon.
Analysts say that prices haven't reacted as sharply to high stockpiles due, in part, to fears about selling during hurricane season. The National Hurricane Center said 2010 will be particularly active. The Center is now tracking a storm off the African coast that has a 40% chance of forming into a tropical cyclone.
But the high inventories also should defray some storm fears.
"Although the market is still plugging in some degree of storm premium into the pricing structure, we will reiterate that the large petroleum supply surplus is providing a major cushion against any storm-related refinery disruptions," said Jim Ritterbusch, president of Ritterbusch and Associates, which tracks the market.