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Brent rises above $124 on weak dollar,US stockpile drop

Brent rises above $124 on weak dollar,US stockpile drop
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First Published: Thu, Apr 21 2011. 12 41 PM IST
Updated: Thu, Apr 21 2011. 12 41 PM IST
Singapore: Brent crude climbed above $124 a barrel on Thursday as US crude inventories fell unexpectedly last week and a sharply weaker dollar triggered a rush into riskier assets.
The dollar tumbled to a three-year low against a basket of currencies , making dollar-denominated crude less expensive for consumers using other currencies.
“The dollar was weaker and together with the inventory numbers, these factors are supporting oil prices,” said David Cohen, Director of Asian Economic Forecasting at Action Economics in Singapore.
ICE Brent crude for June gained 74 cents to $124.59 a barrel by 9:44am. US crude was up 71 cents at $112.16 a barrel.
Reuters data showed the correlation between a weakening dollar and rising oil prices at its strongest this year.
“The dollar will remain under pressure as the Fed implements quantitative easing and other central banks start to tighten rates,” Cohen said.
A rally in equities has also boosted investor appetite for commodities. Asian stocks jumped to a 3-year high on Thursday, as investors scrambled to get in front of upward momentum in higher-yielding assets, particularly in emerging markets.
According to technical charts, Brent oil is expected to revisit the 11 April high at $127.02 per barrel, while U.S. oil could hit $113.46 a barrel as the long-term uptrend for these two benchmarks have resumed, said Reuters market analyst Wang Tao.
Brent hit a 32-month high above $127 a barrel on 11 April, but concerns about high prices stifling world fuel demand have cut gains since then.
International Energy Agency’s executive director Nobuo Tanaka said on Wednesday that high oil prices have hurt demand in top consumers China and the United States, and OPEC needs to raise output around June to stem further price rises.
However, Ecuador’s oil minister said Opec sees oil prices between $80 to $90 as “adequate” and had no plans for an emergency meeting because the market was well supplied despite unrest in Libya.
US crude inventories unexpectedly fell 2.32 million barrels last week, bucking average analyst forecasts in a Reuters poll for a 1.1 million barrel increase. It was the first draw down since the week to Feb. 25.
Stocks of gasoline shed 1.58 million barrels to 208.1 million barrels, in line with analyst expectations for a 1.5 million-barrel draw. Gasoline stocks were down even as US gasoline demand fell by 1.8% on average over the last four weeks versus the same period of 2010, EIA said.
“The overhang of US crude and oil product inventories... is now at its lowest level since the end of 2008. Cushing inventories have fallen, and we continue to see WTI as being underpriced relative to Brent,” said analysts at Barclays Capital in a research note.
The popular West Texas Intermediate (WTI) crude benchmark has been hampered by storage issues at Cushing, Oklahoma, the delivery point for U.S. futures, where inventories hit record levels last year because of rising supplies from Canada via pipelines.
Brent crude’s premium over WTI was at $12.40 a barrel by 5:15pm, having narrowed from over $16.00 last week.
Analysts point to the large US draw down and signs of firm Chinese demand as evidence that worries over a sharp drop in oil demand due to higher prices may be premature.
“Concerns about a major collapse in oil demand seem misplaced at this point given the (global) performance of demand in Q1,” said the Barclays Capital report.
China’s implied oil demand grew by double digits for the sixth consecutive month in March, but was down from February as refineries scaled back runs on maintenance and soaring crude costs.
Commercial stocks of crude oil in China rose 2% in March from the previous month while stocks of gasoline, diesel and kerosene fell 8%, the first decline in 5 months, data from a newsletter published by the official Xinhua News Agency showed on Thursday.
Meanwhile, tensions in the Middle East that helped lift oil to recent 32-month peaks escalated after fighting in Libya’s besieged rebel city of Misrata killed at least 10 civilians, and NATO urged non-combatants to avoid troops so it could step up air strikes.
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First Published: Thu, Apr 21 2011. 12 41 PM IST
More Topics: Markets | Oil | Commodity | Brent | Crude |