Continuing speculation about the future of the US Federal Reserve's asset-purchasing program in the wake of congressional testimony by Chairman Ben Bernanke sent the dollar sharply higher Wednesday, and augmented downward pressure on the oil complex.
NYMEX July crude settled $1.90/b lower at $94.28/b. The front-month contract extended an overnight decline in afternoon US trade to hit a four-day low of $94.05/b shortly before the 2:30 p.m. EDT (1830 GMT) NYMEX market settle.
ICE July Brent also closed Wednesday trading in lower territory, but out-performed against the NYMEX crude complex throughout the majority of the US trading day. The front-month Brent contract settled $1.31/b lower at $102.60/b after bottoming out at $102.22/b late in the afternoon session.
Wednesday's congressional testimony by Federal Reserve Chairman Bernanke sent financial markets whirling, which contributed to volatility in the oil complex, analysts said.
"You saw [trading] volume come in at 10:00 a.m. [1400 GMT] and 2:00 p.m. [1830 GMT]," trader Tim Corr, of TNT Energy, said, referencing the start of Chairman Bernanke's testimony and the release of the Federal Open Market Committee meeting minutes for May.
Market sentiment has been increasingly sensitive to shifts in rhetoric out of global central banks, looking for any clues about when banks are likely to cut back on monetary easing programs.
"[The markets] didn't know how to interpret Bernanke," Brown Brothers Harriman analyst Marc Chandler said. "He started dovish in his prepared remarks and said that they are not going to pull back from quantitative easing prematurely, which is why initially the euro, bonds and stock markets rallied. But then in the Q&A, he sounded a little more hawkish."
The US Dollar Index, which had weakened overnight, climbed to a fresh near-three-year high of 84.422 during US trade in the wake of Bernanke's testimony.
Chandler added that the FOMC meeting minutes released in the afternoon also indicated that the Federal Reserve will continue discussing the future of the Fed's asset purchasing program.
At 2:30 p.m., the Dollar Index was up 0.56% at 84.335, after the dollar firmed against a number of currencies, including the euro, yen, and Swiss franc. The UK pound fell to its lowest level against the dollar since March 14.
Wednesday's EIA data showed a slight dip in US commercial crude inventories over the reporting week ended May 17, but stocks at Cushing, Oklahoma -- delivery-point for the NYMEX crude contract -- climbed by 449,000 barrels to 50.183 million barrels. The build comes on the heels of the 574,000 barrel build seen the previous week.
"Crude supplies are ample in the US, if not at glut levels," Mike Fitzpatrick, editor-in-chief of the Kilduff Report, said in a note.
Product markets also turned lower. The distillate complex was hit particularly hard, despite an unexpected 1 million barrel drop in US inventories. NYMEX June heating oil settled 5.54 cents lower at $2.8736/gal, while ICE June Brent was down $15.25/mt at $860.50/mt at 2:30 p.m.
NYMEX June RBOB closed 2.64 cents lower at $2.8194/gal, despite an unseasonably large 3 million barrel build in US gasoline stocks in Wednesday's data. However, on the East Coast -- home of the New York Harbor-delivered RBOB futures contract -- stocks only increased by 233,000 barrels, while implied demand for the road fuel jumped by 449,000 b/d to nationally to 8.790 million b/d.
Both the Dow Jones Industrial Average and Standard & Poor's 500 surged to fresh record highs of 15,542.4 and 1,687.18 respectively following Bernanke's prepared testimony, before dropping off sharply throughout the afternoon US session.
At the NYMEX settle, the Dow was down 0.25% at 15,348.6, while the S&P 500 was 0.57% lower at 1,659.61.
