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Crude plunges to monthly lows, as stronger dollar offsets Iraqi concerns

Published 05/26/2015, 02:29 PM
Updated 05/26/2015, 02:47 PM
WTI crude fell near $58 a barrel on Tuesday, while Brent dipped below $64

WTI crude fell near $58 a barrel on Tuesday, while Brent dipped below $64

Investing.com -- Crude futures plummeted sharply on Tuesday reaching its lowest levels in the month of May, amid a stronger dollar and geopolitical concerns in the Middle East.

On the New York Mercantile Exchange, WTI crude for July delivery plunged 1.66 or 2.78% to $58.03 a barrel. Earlier, Texas Light Sweet futures dipped to an intraday low of $57.72, its lowest level since April 29 when it fell to $56.54. The sell-off on Tuesday marked just the second time in May that WTI crude dropped below $58 a barrel.

On the Intercontinental Exchange (ICE), brent crude for July delivery experienced a similar decline. Brent futures fell to an intraday low of $63.29 before slightly rebounding to $63.73, down 1.79 or 2.73% on the session. Brent dropped to the lowest level since April 23, when it stood at $62.22.

The spread between the U.S. and international benchmarks of crude rose to 5.70, slightly above Friday's level of 5.65.

In a note to investors, Goldman Sachs (NYSE:GS) said U.S. output could increase in the coming months if crude prices stabilize. Last week, crude production nationwide dwindled to 9.262 million barrels per day amid a slowdown in Alaska.

"We believe that should West Texas Intermediate prices remain near $60 a barrel, U.S. producers will ramp up activity, given improved returns," Goldman Sachs said in a report.

The dollar soared to its highest level in a month amid a wave of promising economic data. EUR/USD fell nearly 1% to 1.0873, dropping below 1.09 for the first time in a month. Crude prices typically move lower when the euro depreciates against the dollar.

While U.S. durable goods orders fell slightly by 0.5% in April, the decline was less sharp than a projected 0.6% loss by analysts. The figure was tamped down by a 4% decline in commercial airlines and 3.4% dip in computer orders.

A reading of core orders, however, which excludes volatile bookings of airplane and auto orders, rose by 0.5% last month, above expectations of a 0.4% gain. Last month's rebound could be attributed solely to a surge in airplane orders after transportation procurements spiked by 15.2%. In March, the core reading fell by 0.2% month-to-month and by nearly 2% on a yearly basis.

The U.S. Department of Commerce also said in a monthly report that new home sales in April rose 6.8% to a seasonally-adjusted 517,000. The gains fell in line with analysts' forecasts of a 485,000 to 540,000 increase for the month.

Separately, consumer confidence showed signs of stabilizing moving to 95.4 for the month of May, up 0.2 from a previous reading last month. Analysts expected The Conference Board's monthly Consumer Confidence Index to tick down by 0.1 to 95.1. Dollar-denominated commodities such as crude become more expensive when the dollar appreciates.

In Iraq, there were reports of ongoing fighting and airstrikes in the Anbar province west and south of the city of Ramadi, which was seized by fighters from the Islamic State early last week. In December, crude output in Iraq spiked at a record 4 million barrels per day a month earlier, significantly above a previous high of 3.56 million barrels in 1979. Iranian officials, meanwhile, indicated on Sunday they are unlikely to change its output ceiling when OPEC meets next on June 5. If economic sanctions are lifted against Iran this summer, it has been forecasted that Iranian exports could increase to 1.7 million bpd in a 12-month span adding to the glut of supply in the global market.

Energy traders await Wednesday's weekly U.S. inventory report for further indications on supply levels in the market. Last week, the Energy Information Administration (EIA) said commercial crude stockpiles fell by 2.7 million barrels for the week ending May 15, above estimates of a 2.1 million draw. It marked the third consecutive week of weekly declines, easing concerns of oversupply.

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