Dollar Strength Blamed for Crude Oil Reversal

Brent crude dropped below a key $109 a barrel level on Wednesday, following news of a rise in U.S. stockpiles and the release of some mildly bearish government data, but some traders blamed crude's reversal mostly on U.S. dollar's strength.

By midday, the U.S. Dollar index rose by 0.41 percent. In turn, Brent crude fell 88 cents to $108.79 a barrel, after swinging between a high of $109.80 and a low of $109.32 earlier in the session. U.S. oil rose 18 cents to $92.72, gaining for a fifth day in the longest daily winning streak since mid-December.

(Read More: Brent Falls Anew After US Inventory Jump)

"You can look at all the supply data you want, but crude is still trading in inverse relationship to the dollar," said Jim Iuorio, a professional trader at the Chicago Mercantile Exchange. "The dollar strength today is pushing crude lower, and I think it tests that $90 level again sometime soon."

Rich Ilczyszyn, founder of iiTrader, agreed.

"The dollar puts the skids on all commodities, including oil," he said on CNBC's "Futures Now." He added that the reversal might also be a "capitulative bounce," meaning traders sold oil to lock in profits, causing the sharp decline in oil prices.

(Read More: CNBC Explains Capitulation)

Should oil reach the $94 level, Ilczyszyn plans to get short.

U.S. crude inventories rose last week as imports increased, and gasoline fell as refineries processed less oil, government data from the Energy Information Administration said.

Monthly reports from the world's three main energy agencies also put pressure on prices.

(Read More: US Crude Oil Supplies Grew by 2.6 Million Barrels)

Getty Images

A report by the International Energy Agency that output in the United States would be enough to protect against most potential supply shocks put pressure on prices.

The crude reversal could also be blamed on technicals, Iuorio added. Brent's intraday high of $93.40 was the same level of resistance crude faced last week, he noted. Iuorio is considering selling crude if it gets back to the $93.30 level with a target of $90.50 and a stop at $94.50.

Pro trader Anthony Grisanti said the oil market is very range bound, meaning it's dictated by technicals. He plans to sell the April crude futures contract at $93.80 with a target of $90.50 and a stop at $95.20.

Read on for 10 Things You Need to Know to Trade Futures

— By CNBC's Drew Sandholm with Reuters

Watch "Futures Now" Tuesdays & Thursdays 1p ET exclusively on FuturesNow.CNBC.com !

Like us on Facebook! Facebook.com/CNBCFuturesNow

Follow us on Twitter! @CNBCFuturesNow

Contact Futures Now

  • Showtimes

    Watch Futures Now Tuesdays & Thursdays 1p ET exclusively on cnbc.com!

Sponsor Links

  • CME Group brings buyers and sellers together through its CME Globex electronic trading platform and trading facilities in New York and Chicago.

  • Take your trading to the next level with a platform that lets you trade stocks, options, futures and forex all in one place with no platform or data with no trade minimums. Open an account with TD Ameritrade and get up to $600 cash.