Oil Drummed

Published on Wednesday, 23 May 2012 17:13 Written by Todd Shriber

New York, May 23^rd  (TradersHuddle.com) – Increased supply, rising inventories and more concerns about Europe combined to thwart any chance of upside for crude on Wednesday. NYMEX-traded crude lost $2.14, or 2.3%, to settle at $89.71 per barrel. That’s the first settlement below $90 for the benchmark U.S. contract since early November. Oil and other commodities were once again plagued by a stronger U.S. dollar. The PowerShares DB US Dollar Index Bullish (NYSE: UUP) added 0.35% and is approaching its highest levels of 2012.

The U.S. Energy Department said oil stockpiles rose 883,000 barrels to 382.5 million barrels last week. That’s better than 1.65 million-barrel increase analysts expected, but it still leaves U.S. oil inventories at 22-year highs. Following weeks of rising inventories and troublesome global economic data, U.S. oil futures have tumbled 15% since the start of May.

Traders again glossed over a decent housing data point as the Commerce Department said new home sales 3.3% last month to a seasonally adjusted rate of 343,000 up from 332,000 in March. The median price was $235,700, a 0.7% increase from March.

Again, that sends the message that Europe is ruling the roost for global markets. A summit of European policymakers kicked off today, but it did little to assuage nervous investors that Greece’s departure from the Euro Zone could be a real mess and lead to more problems in the near-term.

Iran and the U.S., U.K., France, Russia, China and Germany are holding talks in Baghdad regarding Iran’s nuclear program and any progress on that front would pressure oil on the downside. Tensions with Iran, which prompted some to speculate crude supplies would be diminished, forced oil futures higher earlier this year. Saudi Arabia, OPEC’s largest producer, has made up for the short fall and has been pumping additional crude in recent months.

To their credit, U.S. stocks fought their way to a moderately higher finish after spending much of the session deep in the red. In fact, the Dow Jones Industrial Average was staring one of its worst days of the year square in the face, but finished with a loss of less than seven points. The late-day buying spree sent Exxon Mobil (NYSE: XOM) higher by 0.1%, but Chevron (NYSE: CVX) closed with a small loss.

In good news for the oil services group, Baker Hughes (NYSE: BHI) said he U.S. oil-directed rig count would have to double to more than 2,500 rigs if analyst estimates of a 2 million-barrel-per-day increase in U.S. oil production by 2017 are correct, Reuters reported. The news helped the Market Vectors Oil Services ETF (NYSE: OIH) to a gain of over 1.3% on volume that was nearly 50% higher than the daily average.