Oil prices fell 1 percent on Friday, ending a two-day rally fueled by short-covering and bargain-hunting, as the dollar surged on robust U.S. jobs data and reasserted its influence over crude futures in an oversupplied market.
The dollar .DXY had its biggest daily advance in six weeks, rising 0.7 percent, after U.S. employment growth exceeded expectations in July as higher wages improved chances that the U.S. Federal Reserve would raise interest rates before the year ends. [FRX/]
A stronger dollar makes oil and other commodities denominated in the greenback less affordable to holders of the euro and other currencies, and usually reduces demand for them.
In recent weeks, however, that pattern appeared to have broken down. U.S. crude futures fell to April lows of below $40 per barrel earlier this week despite the dollar’s weakening.
“The dollar/oil correlation may be back today to pressure crude but the reality is we just have too much oil supply out there to continue supporting prices at these levels,” said Phil Davis, trader at PSW Investments in San Diego, California.
“We might hold above $40 next week but I doubt we will be trading at $42 when the new WTI front-month comes into play.”
The September front-month contract in WTI CLU6, or U.S. West Texas Intermediate (WTI) crude, was down 40 cents, or 1 percent, at $41.53 per barrel by 12:31 a.m. EDT (1631 GMT), after a session low at $41.06. The October contract CLV6, which will become front-month from Aug 23, traded above $42.
Brent crude LCOc1 was down 43 cents, or 1 percent, at $43.86 per barrel. It earlier fell to $43.51.