Oil gains in line with Wall Street

Crude prices followed US stocks higher after a positive read on the services sector buoyed sentiment.

Oil followed US stocks higher as an upbeat services sector indicator boosted sentiment.

Crude-oil prices flipped to gains Wednesday as oil keeps trading in concert with stocks, other commodities and some currencies.

US crude for August delivery settled up 83 cents, or 1.8 per cent, at $US47.43 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, gained 84 cents, or 1.8 per cent, to $US48.80 a barrel on ICE Futures Europe.

Oil’s fate has been closely tied to other markets since last month’s vote by the UK to leave the EU. The vote fuelled uncertainty about global growth prospects, often sending investors out of stocks and commodities and into traditional haven assets like the US dollar and gold. But occasionally those trends reverse, and all at once, as they did around noon Wednesday.

Stocks turned higher on a fresh sign that the US economy appears to be on solid ground. The Institute for Supply Management’s non-manufacturing purchasing managers index rose in June to its highest reading since November, a turnaround from earlier in the year, and something that lifted the S&P 500.

The dollar flipped lower and gold gradually pared gains throughout the day. Mark Waggoner, president of brokerage Excel Futures, said he received no orders for gold, but plenty for many other commodities, a sign to him of investors’ declining thirst for safe-haven assets.

“My guess is that is pretty much done,” Mr Waggoner said. “It’s run up. It’s overdone. This whole Brexit thing is going to be (headed) to the sideline.”

Even if the Brexit-related caution subsides, the connection between the path of stocks, the dollar and oil may not, other analysts said. Jim Ritterbusch, president of energy-advisory firm Ritterbusch & Associates, told clients to expect oil to move with equities through the rest of the month and maybe longer.

The Dow Jones Industrial Average rose 27 points, or 0.2 per cent, to 17867. The S&P 500 added 0.2 per cent and the Nasdaq Composite gained 0.4 per cent.

Sterling also pared losses from earlier dropping to a 31-year low, pushing the US dollar lower. The Wall Street Journal Dollar Index, which tracks the greenback against a basket of other currencies, was down 0.2 per cent on Wednesday.

A falling dollar often drives prices higher for commodities that trade in dollars because a weaker dollar makes them cheaper for traders using other currencies. The S&P GSCI index, which tracks the prices of 24 commodities, flipped to gains of 0.3 per cent erasing losses that had peaked beyond 1 per cent in earlier trading.

“As the stock market is going, at least for today, so goes the oil market,” said Andy Lipow, president of Lipow Oil Associates in Houston.

The correlation is a direct result of the Brexit vote and will likely keep oil and equities moving in concert at least through the rest of July, said Jim Ritterbusch, president of energy-advisory firm Ritterbusch Associates.

Earlier oil had fallen along with stocks. The losses had oil near its lowest point in nearly two months. Prices had tumbled more than 4 per cent on Tuesday in part because of a glut of gasoline and a pick-up in US drilling activity that is increasing fears of US production holding strong.

Gasoline’s oversupply is still capping any gains, Mr Lipow said. Shipping tracker ClipperData is showing gasoline cargoes getting diverted from the East Coast and others simply anchoring in New York harbour. It shows how much refiners overdid a transition from making diesel to making gasoline, creating too much gasoline with no place to sell it, said Scott Shelton, broker at ICAP PLC.

“It’s pretty crazy. It’s completely opposite of what the industry anticipated.” Mr Shelton said. “They thought gasoline demand was going to be strong — and they were pretty much right — but we’ve just been swamped with supply.”

Gasoline futures settled up 0.42 cent, or 0.3 per cent, at $US1.4329 a gallon, erasing losses of nearly 3 per cent from early trading. Diesel futures gained 2.55 cents, or 1.8 per cent, to $US1.4711 a gallon.

According to The Wall Street Journal survey of analysts and brokers, US crude stockpiles did likely decline last week by 2.5 million barrels. But that is less than the five-year average decline of 3.4 million-barrels for that period, according to S&P Global Platts.

The US Energy Information Administration is delaying its official inventory report until Thursday at 11am. ET because of the Independence Day holiday that started the week.

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