London: Oil prices rose on Tuesday, building on a week of gains after Japan unexpectedly lowered interest rates, raising expectations of further boosts for other major economies.
The Bank of Japan cut its overnight rate target to a range between zero and 0.1% from 0.1% and pledged to buy 5 trillion yen ($60 billion) worth of assets in an attempt to stimulate the world’s third-largest oil-consuming nation.
Stock markets rallied with Japan’s Nikkei average bouncing back to its biggest daily%age gain since mid-September, while the dollar slipped.
Oil often moves inversely to the dollar as it is priced in the US currency on international markets.
US crude for November rose 20 cents to $81.67 a barrel by 1:06pm, not far below Monday’s peak at $82.38, the highest price since Aug. 6. ICE Brent for November gained 15 cents to $83.43.
“The oil price strength is very largely a response to the weaker dollar,” said David Wech of JBC Energy.
Central banks in Japan, the United States and Britain have been under political pressure to do more to support economies showing only tepid recovery from the worst recession in decades.
Oil had slipped earlier on Tuesday on forecasts for gains in US crude and gasoline inventories and technical analysis signalling Monday’s rally to a two-month high was overdone.
US crude oil inventories probably rose last week by 600,000 barrels, while gasoline stocks were expected to have gained 100,000 barrels as refinery utilisation dropped, a Reuters poll ahead of weekly inventory reports showed.
Industry group the American Petroleum Institute (API) will issue its weekly inventory report on Tuesday at 2:00am. The US Energy Information Administration (EIA) will follow with government data on Wednesday.
But supplies of distillates including heating oil and diesel were projected to have declined by 800,000 barrels as demand remained strong, particularly for diesel, a major component of this inventory segment, the poll said.
Friday sees the release of key monthly US employment data. US economic indicators have so far this week been mixed.
Pending sales of previously owned US homes rose more than expected in August to a four-month high, but new US factory orders fell slightly more than expected.
A crippling strike at France’s top oil port, the world’s third-largest, will continue on Tuesday and some refineries are expected to run out of crude supplies in about a week, unions and industry officials said.
The upper Houston Ship Channel should reopen later on Tuesday, restoring crude flows to four refiners in Texas holding 4.9% of US capacity before their supplies run low, the US Coast Guard said on Monday.
Investors were keeping a wary eye on signals from oil producers ahead of next week’s meeting of the Organization of the Petroleum Exporting Countries, which is expected to keep oil output targets unchanged.
“Everything but leaving output allocations unchanged would come as a major surprise,” said Wech. “Crude prices having been trading in the targeted $70 to $80 per barrel range for more than a year, making Opec members happy and giving them no incentive to change allocations.”
Opec may discuss production by Iraq, which has no oil output target as it rebuilds after years of war. Iraq raised its estimate of proven oil reserves by a quarter on Monday.