The European benchmark’s premium to WTI was $7.87 a barrel, down from yesterday’s settlement of $8.08. The spread shrank to $7.48 yesterday, the narrowest level on an intraday basis since Jan. 3, 2012.

The spread may contract to as little as $5 in the third quarter as transportation bottlenecks in the central U.S. are cleared, according to a report by Jeffrey Currie and Stefan Wieler, analysts at Goldman Sachs Group Inc. in New York.

The Dollar Index, which tracks the U.S. currency against those of six major trading partners, rose as much as 0.8 percent. The Standard & Poor’s GSCI Index of 24 commodities was down 1 percent.

Currency Moves

“This is all about currency moves,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The inverse correlation between the dollar and commodities is alive and well.”

Gold for June delivery settled at $1,436.60 an ounce on the Comex in New York after the biggest drop since April 15, when prices capped the biggest two-day loss in three decades. Silver for July delivery declined 1.1 percent, to close at $23.658 an ounce in New York.

OPEC produced 30.46 million barrels a day last month, up from 30.18 million in March, the group’s Monthly Oil Market Report showed. That’s the most since November, according to the estimates based on secondary sources. Global oil use is forecast to rise 800,000 barrels a day to 89.66 million barrels a day this year, down from April’s forecast of 89.67 million barrels.

“Fundamentally, we should be below $90,” said Tariq Zahir, a commodity fund manager at Tyche Capital Advisors in New York. “Fundamentals are starting to take over the market now.”

U.S. Production

U.S. crude output rose 57,000 barrels a day to 7.37 million last week, the highest level since February 1992, a May 8 Energy Information Administration report showed. Stockpiles increased 230,000 barrels to 395.5 million, the most since weekly data started in 1982. Based on monthly data, they were last at this level in 1931.

“OPEC production is going to weigh on the market,” said Rich Ilczyszyn, chief market strategist and founder of commodities trading firm Iitrader.com in Chicago. “We have a supply problem as there is plenty of oil. U.S. supplies are at an 82-year high.”

Saudi Arabia, OPEC’s biggest crude producer, welcomes additional supplies from other producers that may help to stabilize prices, Oil Minister Ali Al-Naimi said.

“New supplies are welcome,” Al-Naimi said today in a speech in Istanbul, where he traveled to meet Turkish energy minister Taner Yildiz. “They will add depth and, I hope, greater stability to world markets.”

Al-Naimi has described $100 as a “reasonable” price for both oil consumers and producers.

Technical Resistance

The drop in prices occurred after the oil market failed to breach key technical resistance, Yawger said.

“We touched technical resistance in the $97 to $98 area for the third time since late January,” Yawger said. “We were in the area in late January, early April and at the beginning of this week and failed to break through on each occasion. Oil touched $97.17 May 6 and has been under pressure ever since.”

Implied volatility for at-the-money WTI options expiring in July was 20.1 percent, little changed from 20.1 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 741,240 contracts as of 3:12 p.m. It totaled 701,619 contracts yesterday, 20 percent above the three-month average. Open interest was 1.76 million contracts.

Source: Bloomberg