US crude oil fell below $86 a barrel today, dampened by a stronger dollar and an expected rise in US crude and fuel stocks.
The dollar reached a one-year high against the euro and an eight-month peak against the yen after robust data that suggested the Federal Reserve will lead its counterparts in Europe and Japan in raising interest rates this year.
The move brought oil down from 19-month highs hit yesterday, and pressured other commodities such as gold.
US crude for June fell 98 cents to $85.21, after hitting an intraday high of $87.15 today, the strongest front-month price since $89.82 traded on October 9th, 2008.
London Brent crude slipped 79 cents to $88.15 a barrel, maintaining a big premium over US crude futures, also known as WTI, due to high crude oil inventories in the United States and a tight physical crude oil market in the North Sea.
Dealers said oil prices also received some support from worries that the giant slick in the Gulf of Mexico could disrupt crude oil supplies in the United States. BP said today work had begun to drill a relief well to stop the spill.
"The possibility of supply disruptions, when combined with the strong-looking chart formations, will likely make the case for somewhat higher prices over the short-term," said Edward Meir, senior oil analyst at brokers MF Global.
Ahead of weekly inventory data from industry group, the American Petroleum Institute (API), and the US government Energy Information Administration (EIA), analysts forecast crude stocks increased by 1.2 million barrels last week.
If so, US crude stocks - at their highest level since mid-June 2009 - would have risen for the 13th time in 14 weeks, and could in some way ease concerns over a possible supply squeeze if the busted well gushing oil is not contained quickly.
Distillate stocks, including heating oil and diesel, were forecast up 1.8 million barrels, for the fifth-straight week of a build, while gasoline was seen rising just 200,000 barrels after a surprise drawdown the week before, the poll showed.
The dollar rose 0.5 per cent against a basket of currencies, boosted by data yesterday showing US manufacturing posted its fastest pace of growth in nearly six years in April.
A strong US currency makes dollar-denominated commodities, such as oil, costlier for holders of other currencies.
Reuters