London: Oil slid towards $80 on Thursday as the dollar strengthened, dragging fuel prices off seven-week highs after news of another build in US crude inventories.
The dollar gained around 0.25% against a basket of currencies while the euro slipped before a European Central Bank meeting at 6:25pm, which was expected to keep interest rates at a record low of 1.0%.
Benchmark US crude oil futures for April fell 45 cents to $80.42 per barrel by 2:34pm. The contract reached a peak of $81.23 on Wednesday, its highest intraday point since 12 January. London ICE Brent for April fell 40 cents to $78.85.
“A stronger dollar and a build in US crude stocks are both negative factors,” said Carsten Fritsch, commodities analyst at Commerzbank in Frankfurt. “We expect oil prices will come down from these levels as fundamentals are not supportive.”
The Energy Information Administration said on Wednesday US crude inventories last week rose by a larger-than-expected 4.1 million barrels, while gasoline stocks also increased.
Balancing that data were figures showing total US oil demand grew 0.3% in the past four weeks from a year earlier, raising expectations for an end to a 1-1/2-year period of sustained consumption decreases.
But currencies again led sentiment, analysts said, with the focus on the euro zone and worries that a prolonged economic slowdown would hit demand for energy.
The dollar fell against the euro on Wednesday as concerns eased about deficits in European countries. A weaker dollar tends to support oil prices, making dollar-denominated commodities cheaper for other currency holders.
Greece’s budget-balancing pledges on Wednesday helped restore appetite for risk, boosting the euro against the dollar. On Thursday, the spotlight shines again on the euro zone when it reports revised gross domestic product for the fourth quarter.
China Investment Corp, the country’s sovereign wealth fund, believes commodity prices are outpacing the global economic recovery, fuelled by loose monetary policies, a top official said on Thursday.
“Personally, I think the prices are a bit too high, relative to the strength of real economic recovery,” Jesse Wang, CIC executive vice president and chief risk officer, said on the sidelines of a conference in Beijing.
Oil prices have ranged between $69 and $84 a barrel over the past few months at a time of uncertainty over the pace of recovery. But a decline in crude stocks and the surplus held in floating storage has set the stage for an increase towards the $80-$90 range, according to Barclays Capital.
The latest data from the Joint Oil Data Initiative (JODI) implies Asian demand has been growing by more than 2 million barrels per day from a year earlier, according to Barclays.
“If Asian demand can grow at such rapid rates when prices are in the $70 to $80 range, then prices cannot stay in that range for much longer,” Barclays analysts headed by Paul Horsnell said.
An interest rate decision by the Bank of England is also due on Thursday, at 5:30pm, followed by US durable goods and factory order statistics for January. On Friday, attention will turn to US non-farm payrolls.