Fed putting pressure on commodities

West Texas Intermediate oil fell after the Federal Reserve ended its asset-purchase program and U.S. crude production surged to the highest level since the 1980s. Brent declined in London.

Futures slipped as much as 1.2% in New York. The dollar (NYBOT:DXZ14) strengthened a second day against the euro after the Fed’s announcement, curbing the appeal of commodities priced in the U.S. currency as a store of value. U.S. crude supplies rose for a fourth week as output increased to 8.97 million barrels a day, Energy Information Administration data showed yesterday.

Yesterday’s Fed announcement is pushing the dollar higher, which is putting selling pressure on commodities,” Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut, said by phone. “The supply build yesterday may have been smaller than expected but it was still quite large. Ample supply and economic worry are going to continue to weigh on the market.”

WTI for December delivery (NYMEX:CLZ14) dropped 57 cents, or 0.7%, to $81.63 a barrel at 9:02 a.m. on the New York Mercantile Exchange. The volume of all futures traded was 21% below the 100-day average for the time of day. Prices have decreased 17% this year.

Brent for December settlement (NYMEX:SCZ14) declined 52 cents, or 0.6%, to $86.60 a barrel on the London-based ICE Futures Europe exchange. Volume was 35% lower than the 100-day average. The European benchmark crude traded at $4.97 premium to WTI, compared with $4.92 yesterday.

Labor Market

The Fed said yesterday that the U.S. labor market has strengthened enough to withstand an end to its unprecedented asset-purchase program and downplayed risks posed by declining inflation. The dollar added 0.6% to $1.2556 per euro after climbing 0.8% yesterday.

“It’s another negative factor for the oil market and for commodities in general, coming on top of an already oversupplied oil market,” Hans van Cleef, energy economist at ABN Amro Bank NV in Amsterdam, said by phone of the Fed’s move. “When you pull money out of the market, normally the first thing you’d sell is riskier assets.”

U.S. crude stockpiles increased 2.06 million barrels to 379.7 million in the week ended Oct. 24, according to the EIA, the Energy Department’s statistical arm. A 3.65 million-barrel gain was projected in a Bloomberg survey of analysts.

Gasoline (NYMEX:RBZ14) inventories dropped 1.24 million barrels to 203.1 million, the lowest level since November 2012, the data showed. Stockpiles of distillate fuel, a category that includes heating oil and diesel, fell 5.3 million barrels to 120.4 million.

Bear Market

Crude has collapsed into a bear market amid increasing global supplies as leading members of the Organization of Petroleum Exporting Countries resisted calls to cut production. Futures are down about 10% in October, set for the largest monthly loss since May 2012.

Supply and demand will return to equilibrium and OPEC members aren’t waging a price war, the group’s Secretary-General Abdalla El-Badri said yesterday.

OPEC, which pumps about 40% of the world’s oil, doesn’t face a “critical situation” as a result of the price slump, according to El-Badri. Its collective output in 2015 will remain close to this year’s level of about 30 million barrels a day, he said at the Oil & Money conference in London.

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