Singapore: Oil fell slightly on Wednesday to stand near $75 as a firm dollar offset a surprise drop in crude stockpiles in top consumer the United States.
Concern that a global economic recovery is cooling propped up the US dollar and the yen, while commodity-related currencies, including the Australian dollar, faced pressure from investors unwinding risky trades.
“Over the last few days, the dollar has been stronger because people are trying to get risk off their portfolio,” said Keichi Sano, general manager of research at SCM Securities in Tokyo. “People now are in the mood of risk off, not risk on.”
US oil for March delivery fell 4 cents to $74.67 a barrel by 1:31pm, after touching a five-week intraday low of $73.82 on Tuesday. London ICE Brent for March settlement shed 7 cents to $73.22.
The Fed’s Open Market Committee (FOMC) on Wednesday will conclude a two-day meeting that is expected to yield little in terms of a US monetary policy shift.
“I don’t think FOMC will give us any hint of higher interest rates soon,” Sano said. “For now, we might struggle to go lower than $70,” a barrel, he added.
The drop in U.S. crude supplies came as imports fell by 1.5 million bpd to 8.31 million bpd, according to the American Petroleum Institute’s weekly report. Inventories were expected to have gained 1.4 million barrels, a Reuters poll showed.
Some analysts attributed the drop in crude imports to weather-related disruptions that slowed offloading along the US Gulf Coast.
US inventories of distillates, a fuel category that includes heating oil and diesel, fell by 2 million barrels versus forecasts of a 1.7 million-barrel decrease. Gasoline stocks grew by 916,000 barrels, compared to expectations for a 1.1-million gain.
Traders also awaited the release of government inventory statistics from the Energy Information Administration (EIA) at 1600 GMT on Wednesday.
On Tuesday, China enforced stricter reserve ratios for selected banks, triggering a wave of concern that tightening measures will restrain energy demand. And last week, US President Barack Obama proposed tightening trading rules for banks.
“Possible financial restrictions on hedge funds, that is also a concern for participants in the commodity markets,” Sano said.
The phase-out of stimulus measures in China, the world’s second-largest oil user, could jeopardise a rebound in global oil demand. Forecasters including Goldman Sachs have highlighted the importance of emerging markets in Asia to drain unseasonably-high oil inventories.
But the return of positive global oil demand growth “may not be enough to put upward pressure on oil prices in 2010,” the Center for Global Energy Studies, a London-based think-tank said in a report dated 25 January.
The glut should subside in the first quarter of this year, increasing the risks of a spike in crude prices and a move into backwardation at the end of the second quarter, JPMorgan said in a monthly report published on Tuesday.
Crude stocks have fallen sharply from their peak at the second quarter of last year, with Organisation for Economic Cooperation and Development (OECD) land-based storage back to the middle of the five-year range and floating storage possibly as low as 20 million barrels, JP Morgan said.