Singapore: Oil prices slipped for a second day on Tuesday, falling under $81 a barrel after Saudi Arabia signalled Opec would maintain current production levels at the group’s meeting and as the dollar rallied against the euro.
US crude for November slid $1.21 to $81.01 a barrel by 2:15pm, down more than $3 from last week’s five-month high of $84.43. Prices slipped to a daily low of $80.90 a barrel before recouping some losses. ICE Brent fell $1.11 to $82.58.
The dollar rose by 0.1% against a basket of currencies in Tuesday morning trade, after scrambling off recent steep lows against the euro and the yen on Monday.
“What we’ve seen this morning is the dollar is still a bit stronger, not only against the euro but also against a basket of currencies,” said Andrey Kryuchenkov of VTB Capital.
A stronger dollar renders dollar-denominated commodities more expensive for non-dollar holding buyers.
The market is also awaiting the minutes of the FOMC meeting on 21 September for indications on the likely extent of a widely awaited second round of quantitative easing in the United States, commonly referred to as QE2, although many analysts said the market has already priced this in.
“We believe the actual onset of QE2 will further lift oil prices,” Michael Lo from Nomura Global Equity Research said in a note.
“However, given the different starting points for oil prices and economics between QE1 and QE2, we believe the impact of QE2 will be less pronounced.”
Saudi Arabian oil minister Ali al-Naimi said he was happy with the oil market as he arrived in Vienna on Monday for the first meeting of the Organization of the Petroleum Exporting Countries (Opec) in seven months, to take place this Thursday.
Naimi also said prices of between $70 and $80 were “ideal,” indicating the producer group’s most powerful member has no plans to pursue higher prices.
“The market is very well balanced, everyone is happy with the market,” Naimi said. “I am comfortable with economic growth.”
Opec has not officially changed its production ceiling since December 2008. Levels of compliance with implied targets, however, have slipped to 57%, according to a Reuters survey, leaving plenty of scope to adjust output informally as the market dictates.
The Opec basket price, an average of the group’s most representative crude grades, has so far been $75.38 this year, up from a mean of $61.06 for all of 2009.
A Reuters poll showed US crude oil stockpiles are expected to have risen for a second straight week last week, adding 1.3 million barrels in the week to 8 October due to higher imports.