WTI plunges to negative territory on stronger dollar, weak Japan data

West Texas Intermediate erased previous daily gains and traded on the downside as a stronger dollar weighed on dollar-denominated commodities. Meanwhile, slower than expected economic growth in Japan spurred concern over demand prospects in the worlds third biggest consumer. Brent fell as well.

On the New York Mercantile Exchange, WTI crude for September delivery fell to $105.33 per barrel at 14:40 GMT, down 0.60% on the day. Prices ranged between days high and low at $106.37 and $105.16 per barrel respectively. Light, sweet crude settled 2.3% higher on Friday, biggest daily advance since August 1, trimming its weekly decline to 0.64% after it surged 2.13% the preceding week.

Meanwhile on the ICE, Brent crude for delivery in October slipped to $106.60 per barrel by 14:41 GMT, marking a 0.25% daily decline. Futures held in range between high and low of $106.97 and $106.31 per barrel respectively. The European benchmark surged 1.34% on Friday as positive China data fueled optimism over demand prospects and reduced Brent’s weekly fall to 0.65%.

Japan economic growth

Oil prices were pressured on Monday and traded lower in the late European and early U.S. sessions amid reduced demand prospects as Japans economy, the worlds third biggest, grew less than projected in the second quarter. The Asian nation’s Preliminary Gross Domestic Product rose by 0.6% in the second quarter, underperforming expectations and the preceding quarter’s downward revised pace of 0.9%. Year-on-year, Japan’s economy grew by 2.6%, once again below economists’ projections for a 3.6% surge and last year’s downward revised reading of 3.8% during the same quarter.

Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut, said for Bloomberg: “We had weak GDP data out of Japan. The strong dollar is probably where some of the pressure is coming from. We are back to the trading band between $103 and $108.”

Oil prices were also pressured by a broadly stronger dollar. Dollar-denominated raw materials tend to trade inversely to the greenback as strengthening of the currency makes them more expensive for foreign currency holders and reduces their appeal as an alternative investment. The dollar index, which gauges the performance of the dollar against a basket of six major counterparts, rose by 0.33% to 81.43 at 14:43 GMT as a government report may show tomorrow U.S. retail sales gained for a fourth consecutive month. The September contract varied between days high and low of 81.55 and 81.11 respectively. Futures gained 0.10% on Friday but still settled the week 1.03% lower after advancing 0.30% the preceding one.

Market players will be watching closely this weeks upcoming U.S. data to gauge the U.S. economy’s recovery pace and speculate whether the Federal Reserve will begin winding down its massive bond purchasing program. On Tuesday, apart from the projected to have gained retail sales, import prices are expected to have outdone the previous period both on annual and monthly basis. On Wednesday, producer prices (Producer Price Index) will likely post a slower advance than the preceding period both year-on-year and month-on-month. Thursday’s consumer inflation (CPI) should have advanced by 0.2% compared to June and 2.0% from a year earlier. Industrial Production is expected to have surged by 0.3%, marking the same advance as in June. Both of Friday’s Building Permits and Housing Starts are projected to have advanced last month.

Meanwhile, oil remained pressured throughout the day as one of the main concerns over global supply, Irans decreasing output, may be easing in the near future. Bijan Namdar Zanganeh, a former Iranian Oil Minister, was nominated by the newly elected President Hassan Rohani to re-assume the post. He said that his first action will be to bring back the country’s output to 2005 levels, when the nation wasn’t sanctioned by the U.S., U.N. and E.U. due to its nuclear program. With 4 million barrels per day pumped out in 2005, Iran was OPEC’s second biggest producer. In July, the country fell to the sixth place with an output of 2.56 million bpd.