Singapore: Oil edged down towards $54 a barrel on Tuesday as investors paused for breath after a four-day rally, when hopes of economic recovery sent the contract to its highest settlement for 2009 in the previous session.
A series of positive economic indicators from the US and India, together with a bullish survey of Chinese manufacturing lifted oil to $54.64 in post-settlement trading, two cents shy of its highest trade so far this year.
By 11:20am, US light crude for June delivery fell 45 cents to $54.02 a barrel, having settled at $54.47 on Monday, up $1.27, and its highest settlement since 24 November. London Brent crude was down 27 cents at $54.31.
“It is optimism that we have “hit bottom” and the resulting financial flows into the commodity sector that continue to buoy the market,” said Jonathan Kornafel, Asia director of US-based Hudson Capital Energy in his daily note.
Oil has been trading between $44 and $55 a barrel for the past two months, rebounding from five-year lows just above $30 hit this winter, but failing to push higher so far. But oil is still trading around 63 percent below the record high above $147 it hit in July 2008.
Hints that the US economy may have bottomed out came on Monday as US construction spending rose 0.3% in March in the first increase since September, according to Commerce Department data, while pending US existing home sales rose unexpectedly in March, a private survey showed.
China and India, Asia’s two giant economies, also showed signs of recovery, with a Chinese manufacturing index based on a poll of industry executives conducted for Hong Kong-based brokerage CLSA rising to a nine-month high of 50.1 in April from 44.8 in March.
India’s factory activity expanded in April for the first time in five months, according to the ABN AMRO Bank purchasing managers’ index.
The MSCI index of Asia Pacific stocks outside Japan edged up to a fresh seven-month high, up as much as 0.6% on the day.
But the oil price upside could be capped, if forecasts of rises in US crude and products weekly stocks are proved correct.
A Reuters poll of seven analysts showed on Monday US crude stocks probably rising for the ninth consecutive week last week, which would leave them at another near 19-year high, as imports were expected to maintain their strong pace and refinery activity was little changed.
The poll also showed an average forecast for a 1.0 million barrel increase in distillate stocks and a 700,000 barrel build in gasoline stocks.
“Oil price momentum suggests higher levels - fundamentals suggest lower levels. The market takes firmer equity markets as a lead indicator for stronger oil demand - not a bad assumption - but the equity gains need to be consolidated,” said Mark Pervan, head of commodity research for ANZ Bank in his weekly commodity update.
Oils correlation to equity markets is high, at 0.87 on a 20-day rolling basis, Pervan added.
Adding further support oil prices the U.S. dollar has lost ground broadly against major currencies, and sent investors back to commodities, helping the rise in oil prices.