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Oil drops 2 percent as Fed policy signal awaited
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The price of oil fell 2 percent yesterday, the sharpest decline in two months, as traders waited for the US central bank to signal when it will shift its monetary policy.
US benchmark oil for September delivery fell US$2.14 to US$104.96 a barrel on the New York Mercantile Exchange. Analysts said some of the decline was driven by the expiration of the September contract at the end of trading. The October contract fell US$1.75 to US$105.11 a barrel.
Brent North Sea crude, which is used to price imported oil used by many US refineries, rose 25 cents to US$110.15 a barrel on the ICE Futures exchange in London. Upheaval in Egypt, which controls the Suez Canal, and lower oil production in Libya are supporting the price of Brent.
Evidence that the US economy is improving has led to speculation that the Fed will begin to reduce its US$85 billion a month in asset purchases as early as September. The Fed's stimulus policy has lowered interest rates and made oil and other commodities a more attractive investment by offering potentially higher returns. A "tapering" or phasing down of the program could push down oil prices.
Traders were awaiting the release today of minutes from the Fed's July policy meeting for hints of whether and when the bank might begin cutting back on its bond-buying.
Investors will also be monitoring fresh information on US stockpiles of crude and refined products.
The American Petroleum Institute will release its report on oil stocks later yesterday, while the report from the Energy Department's Energy Information Administration — the market benchmark — will be out on Wednesday.
Crude stockpiles have declined in seven of the past eight weeks.
In other energy futures trading on Nymex:
— Heating oil rose 1 cent to US$3.08 per gallon.
— Wholesale gasoline lost 1 cent to US$2.93 a gallon.
— Natural gas fell 2 cents to US$3.44 per 1,000 cubic feet.
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