Dollar trend continues to push commodities lower (Part 1 of 2)

WTI (West Texas Intermediate) crude oil April futures closed at $48.29 per barrel. Crude oil tested the highs on February 24 and 26. This is the fifth down day in the last ten days. The average down days have been 0.32% more than the average up days over the last ten trading sessions.

WTI crude oil for the April delivery closed near the day’s low on Tuesday. It dropped by 3.42% from the last trading session. On March 10, 2015, the traded volume totaled 348,278 contracts. The volume declined by 61,599 contracts from the last trading session. Crude oil prices decreased more than 50% since the middle of June 2014. This was due to concerns about massive oversupply.

The crude oil trend was different in February 2015. The tug of war between the bulls and bears led the sideways movement of crude oil prices. Crude oil prices dropped due to oil glut concerns and huge inventory buildup data. In contrast, oil prices gained due to slowing supply growth and better demand prospects.

Last week, the EIA (U.S. Energy Information Administration) reported weekly crude oil inventories on March 4, 2015. US commercial crude oil inventories increased by 10.3 million barrels, or MMbbls. This was more than the estimates. Unexpectedly, WTI crude oil closed 2% up at the close of trade.

Crude oil prices are declining from the next day onwards. Prices had a marginal gain on March 9. On March 10, oil declined ahead of inventory data on the consensus of huge inventory buildup data. The dollar is hitting a 12-year high against the euro. This is also putting pressure on dollar-denominated commodities like crude oil. There seems to be a massive sell-off across commodities.

The EIA will release the next US crude oil inventory report on March 11, 2015. The industry estimates an increase of 4.18 MMbbls.

The oil price decline is weighing heavy on oil companies—like Chevron (CVX). Chevron is decreasing its investments in new projects and selling its assets for smooth operations. Lower oil prices reduced Chevron’s cash flow. The same is happening with companies like ExxonMobil (XOM) and Devon Energy (DVN). It also impacts oil-focused ETFs like the PowerShares DB Oil Fund (DBO) and the United States Oil Fund LP (USO).

Continue to Part 2

Browse this series on Market Realist:

• Part 2 - Red alert: Will crude oil hit $42 per barrel?