Tokyo: Oil headed higher above $66 a barrel on Thursday, paring a 3.5% decline the previous day, amid expectations that an economic recovery would eventually draw down oil inventories, despite a rise in US crude stocks.
Oil’s gains were limited as Asian equity markets followed Wall Street’s loss, with Tokyo’s Nikkei falling 0.3% after government data showed a record 25.3% cut in Japanese firms’ first quarter spending on plant and equipment.
The dollar mostly held its ground after a big reversal from 2009 lows on comments by Asian monetary officials and weaker-than-expected US data that took the wind out of a risk rally in other major currencies.
Crude for July delivery rose 18 cents to $66.30 a barrel by 8:00am, after settling down $2.43 a day earlier. London Brent crude was up 27 cents at $66.15.
Oil’s retreat on Wednesday followed a report by the US Energy Information Administration that US crude inventories rose 2.9 million barrels, against expectations for a decline of 1.4 million barrels in a Reuters poll.
“After a third straight week of (US crude stocks) decline, it’s not a surprise if it rose one week,” said Tony Nunan, risk manager at Mitsubishi Corp in Tokyo. “We are now seeing signs of a recovery in demand, and if Opec keeps its supply cuts in place, the inventories will draw down.”
Worries about inflation and the dollar’s weakness still remained, he added.
Saudi Oil Minister Ali al-Naimi has said producer cartel Opec would wait until crude inventories fall to around 53 days of forward cover before considering raising output, nearly 10 days below current levels.
Oil stood around $3 a barrel off the nearly seven-month high of $69.05 hit on Tuesday.
The dollar’s recovery from a 2009 low against the euro also put some pressure on oil. A stronger dollar tends to depress the value of commodities denominated in the greenback.
Markets are watching for decisions later in the day by the European Central Bank and the Bank of England, which are expected to keep interest rates on hold at record lows.
Some traders said they eagerly awaited the US employment data due on Friday. US non-farm payroll jobs likely fell by 520,000 jobs last month, the smallest amount in seven months, a Reuters poll showed, but economists expect the US unemployment rate to rise to 9.2% in May, the highest since September 1983.