Crude Oil Ends Below $46 On Strong Dollar, Oversupply Concerns

crudeoil 121114 23Jan15

U.S. crude oil ended sharply lower Friday, on a significant strengthening of the dollar and continued oversupply concerns after a weekly official oil report from the U.S. Energy Information Administration yesterday showed crude stockpiles in the U.S. to have surged to an 80-year high.

Earlier today, crude oil prices nudged higher after the death of Saudi King Abdullah bin Abdulaziz al Saud.

King Saud, 90, had been suffering from lung infection and acute pneumonia, and was hospitalized a few weeks ago. Abdullah's half-brother, Crown Prince Salman, who is 79 years old, was declared king.

Most analysts expect no change in Saudi Arabia's oil policy or relationship with the West. For now, the Saudis appear content with cheap oil as a means to counter competition from U.S. shale and renewable energies.

There was modest reaction to the European Central Bank's massive stimulus plan, and relatively lackluster reading on Chinese manufacturing did little to alleviate concerns over global demand for oil.

The preliminary HSBC China Manufacturing Purchasing Managers Index, a closely watched gauge of the country's factory sector, rose to 49.8 in January, compared with a final reading of 49.6 in December, HSBC Holdings PLC said Friday.

Light Sweet Crude Oil futures for March delivery, the most actively traded contract, dropped $0.72 or 1.6 percent, to settle at $45.59 a barrel on the New York Mercantile Exchange Friday.

Crude prices for March delivery scaled a high of $47.76 a barrel intraday and a low of $45.35.

On Thursday, crude oil ended sharply lower at $46.31 a barrel, down $1.47 or 3.1 percent, after a weekly official oil report from the U.S. Energy Information Administration showed crude stockpiles in the U.S. to have surged much more than expected last week.

The EIA report showed crude oil inventories in the U.S. to have surged 10.1 million barrels in the week ended January 16, while analysts anticipated an increase of 2.5 million barrels. The report showed U.S. crude oil inventories at 387.9 million barrels end last week, the highest in over 80 years for this time of the year.

The massive inventories were attributed to lower refinery runs, with U.S. crude production stable at 9.2 million barrels a day.

As the dollar surged to 11-year highs against the euro, the common currency continued to plunge in the aftermath of the European Central Bank's massive stimulus plan to re-energize the economy and contain deflation. The euro dropped to its lowest level since September 2003, having dived to $1.1115 intraday.

The dollar index, which tracks the U.S. unit against six major currencies, traded at 94.78 on Friday, up from its previous close of 94.20 late Thursday in North American trade. The dollar scaled a high of 95.48 intraday and a low of 94.11.

The euro trended lower against the dollar at $1.1246 on Friday, as compared to its previous close of $1.1368 late Thursday in North American trade. The euro scaled a high of $1.1374 intraday and a low of $1.1118.

On the economic front, existing home sales in the U.S. rose roughly in line with economist estimates in December, with sales rebounding from the steep drop seen in November, a report from the National Association of Realtors showed Friday.

NAR said existing home sales rose 2.4 percent to a seasonally adjusted annual rate of 5.04 million in December after tumbling 6.3 percent to a downwardly revised 4.92 million in November. Economists expected sales to climb to an annual rate of 5.05 million from the 4.93 million originally reported for the previous month.

Reflecting positive contributions from a majority of components, a Conference Board report on Friday showed its index of leading U.S. economic indicators rose slightly more than anticipated in December.

The Conference Board said its leading economic index climbed by 0.5 percent in December following a downwardly revised 0.4 percent increase in November. Economists expected the index to rise by 0.4 percent compared to the 0.6 percent advance originally reported for the previous month.

A flash reading of the Markit's U.S. manufacturing purchasing managers index for January dipped to 53.7 from 53.9 in December. This was the lowest reading in 12 months.

Meanwhile, the Chicago Fed's national activity index in December showed a negative 0.05 from a positive 0.92 in November, suggesting the U.S. economy grew at a below-trend rate in December. The index is a weighted average of 85 different economic indicators.

Eurozone private sector grew at the fastest pace in five months in January, flash survey data from Markit Economics showed Friday. The composite output index rose more-than-expected to a five-month high of 52.2 in January from 51.4 in December. Economists had forecast the index to rise nominally to 51.7.

Germany's private sector in January remained in expansion territory, signaling a further rise in private sector output. The flash composite output index rose to 52.6 in January from 52 in December. This was the strongest growth in three months.

The French private sector contracted further at the start of 2015, flash data from Markit Economics showed Friday. The composite output index dropped to 49.5 in January from 49.7 in December.

French business confidence remained stable in January, survey data from the statistical office Insee showed Friday. The business confidence index for manufacturers held steady at 99 in January as expected by economists.

British retail sales logged an unexpected growth in December, driven by food sales, while economists anticipated a decline after a rebound in November on Black Friday sales.

The volume of retail sales, including automotive fuel, increased 0.4 percent month-over-month in December, but the growth was slower than the 1.6 percent rise in November, data from the Office for National Statistics showed Friday. Sales were expected to decline 0.6 percent.

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