Crude Oil Futures Dive Again - TheStreet

Updated from 3:27 p.m. EST

Crude oil prices fell for a second straight session Wednesday, driven down by a rallying dollar and bearish Energy Department inventory data.

The May futures contract settled down $2.22 to $53.81 in Nymex floor trading, after falling about 2% Tuesday. Prices are now about $3 below their record close of last week. Nymex heating oil dropped to $1.514 a gallon.

Oil and other energy futures firmed somewhat in after-hours trading following news reports of a fire at a

BP

(BP) - Get Report

refinery in Texas. The May crude contract was quoted at $54.27 around 4:30 p.m. EST.

Oil prices frequently move inversely to the U.S. dollar, the currency in which the commodity is priced. The dollar has risen sharply against most major currencies in the wake of yesterday's

Federal Reserve

policy statement, which noted some inflation concerns. Against the euro, the dollar rose to $1.297 Wednesday, from $1.32 intraday Tuesday.

Exacerbating the selling in oil were Energy Department inventory data that showed U.S. crude stockpiles ballooned by 4.1 million barrels last week, topping the analyst consensus for a 2-million-barrel increase. Gasoline inventories fell by 4.1 million barrels, much less than analysts expected. Distillate stocks fell by 2.8 million barrels.

Phil Flynn, senior market analyst at Alaron, said he expects selling pressure to peak today. "Prices will probably hit $54 today, and that will be the bottom price for a while," he said.

The jump in crude stocks were a surprise, but Flynn is concerned by the surprisingly low levels of oil products, including gasoline and distillated fuels such as diesel. "If you don't refine it, crude will build up quickly, and that's what we got here. So it's all about the refiners now and how quick they can get out more products, because you can't pump crude into your car," he says.

Oil prices last week surpassed the record levels of October 2004 following the release of bullish inventory data even as OPEC announced its decision to increase official output by 500,000 barrels a day. OPEC is now considering a second increase as it tries to cool the latest leg in a yearlong rally. Last year at this time, the benchmark U.S. crude was trading at about $38 a barrel.

The 2005 rally has been driven by renewed concerns that global demand would pressure supply. That equation may be about to change. In raising interest rates Tuesday, the

Fed

appeared to confirm it had altered its thinking on inflation -- reflected in higher yields on long-term bonds and notes as well as a strengthening dollar recently -- and that has traders beginning to think that economic growth -- and thus demand -- will slow.

The fall in oil-related stocks was weighing on the broader market Wednesday. The CBOE Oil Index was recently down 1.92%, while the Philadelphia Oil Service Index lost 3.18%.

Shares of most major producers responded to the drop in oil prices with similar decreases,

Exxon Mobil

(XOM) - Get Report

fell 80 cents, or 1.31%, to $60.10, while

ChevronTexaco

(CHX)

dropped 91 cents, or 1.54%, to $58.26; BP lost $146, or 2.30% to $62.06;

Royal Dutch/Shell

(RD)

dropped $1, or 1.64%, to $59.91, and

ConocoPhillips

(COP) - Get Report

slipped $1.88, or 1.76%, to $105.15.

In other energy market news, Texas' largest utility company,

TXU

(TXU)

, said it had received a subpoena from the

Securities and Exchange Commission

concerning the company's European operations. The SEC is seeking information pertaining to the period from Jan. 1, 2001 to March 31, 2003.

TXU was down 43 cents, or 0.55%, to $77.12.

Amerada Hess

(AHC) - Get Report

said it acquired a 65% stake in Trabant Holdings International, for $25 million. Trabant owns ZAO Samara-Nafta, an exploration and production company located in the Volga-Urals region of the Russian Federation, a major oil and gas producing province. Samara-Nafta produces about 7,500 barrels of high quality crude a day. Amerada Hess was down $1.81, or 1.89% at $93.74.