Oil prices drop with Bernanke testimony in focus, stronger dollar

West Texas Intermediate slid for a second day as investors remained cautious ahead of Ben Bernankes statement to Congress later today. The American Petroleum Institutes weekly report yesterday showed a drop in crude oil inventories, which however was much lower than the preceding two weeks. Gasoline and distillate fuel stockpiles rose.

On the New York Mercantile Exchange, WTI crude for September delivery traded at $105.11 at 7:52 GMT, down 0.55% on the day. Prices held range between days high of $105.68 and low at $104.89, which was hit during early European trading. The U.S. benchmark settled more than 0.5% lower yesterday, extending this weeks decline to nearly 1.2%.

Meanwhile on the ICE, Brent oil for August delivery marked a 0.42% daily decline, trading at $107.69 per barrel at 7:52 GMT. Prices ranged between days high and low of $108.11 and $107.52 per barrel respectively. The European benchmark settled at a 3-1/2-month high yesterday as U.S. gasoline prices surged to four-month highs, contributing 2/3 of the advance in CPI. However, Brent is so far marking a 1.39% weekly decline after gaining more than 6.8% during the preceding two.

The American Petroleum Institute said in its weekly oil reserves report yesterday that last week U.S. crude stockpiles fell for a third straight week as refineries boosted output. However, the drop was much lower than the previous two weeks, which recorded an all-time high. API said Crude Oil Inventories fell by 2.6 million barrels to 371.056 million. U.S. gasoline reserves increased by 2.6 million barrels, while distillate fuel stockpiles added 3.8 million barrels.

However, the industry-funded American Petroleum Institutes report is considered as less reliable than EIAs statistics as it is based on voluntary information from operators of refineries, bulk terminals and pipelines. The Energy Information Administration is scheduled to release its report today at 14:30 GMT. According to a Bloomberg survey, the EIA should report crude reserves have fallen by 2 million barrels last week. Gasoline inventories probably dropped by 1.5 million barrels, while distillate fuel inventories are expected to have risen by 1.5 million barrels. U.S. Crude Oil Inventories dropped by 20.2 million barrels to 373.9 million in the 14 days ending July 5.

Ric Spooner, a chief market analyst at CMC Markets in Sydney, said for Bloomberg: “Current prices are high given the underlying supply and demand fundamentals. Were probably going to need to see sustained weakness in the U.S. dollar or a deterioration in the Middle East to sustain significantly higher prices from here.”

Market players remained spooked and await Ben Bernankes two-day testimony to Congress to gain further information about Feds future intentions regarding Quantitative Easing. Shifting expectations of an earlier-than-expected deceleration of the monetary easing program have been the main factor to determine the dollars strength, thus pushing commodities up and down. The dollar index, which measures the greenback’s performance against six major peers, settled lower yesterday, extending this weeks decline to 0.32% after falling 1.87% the preceding week. On Wednesday, the dollar index for September settlement traded at 82.84 at 7:48 GMT, up 0.26% on the day, which pressured oil. The U.S. currency gauge ranged between days high and low of 82.91 and 82.59.

Meanwhile, Egyptian political unrest also remained in investors focus as the Muslim Brotherhood’s Freedom and Justice Party that supported ousted Islamist President Mohamed Mursi referred to the newly formed Cabinet as “illegitimate” and formed “over the blood of martyrs”. An Islamist coalition called for mass protests today under the slogan “Insistence”.

Apart from Bernanke’s testimony and crude reserves, market players will also be keeping an eye on the remaining U.S. data for the week to gauge the U.S. economy’s recovery pace. On Wednesday, Building Permits and Housing starts will provide data about the U.S. construction sector. The Labor Department will release Initial Jobless Claims on Thursday. The number of people who have filed for unemployment payments is expected to have dropped by 20 000 to 340 000 after last week an unexpected surge to 360 000 supported Bernanke’s statement that the U.S. labor market is still fragile.