Singapore: Oil edged down on Tuesday, coming off a more than 3% rise in the previous session after a rally in Wall Street and financial stocks on a US plan to buy up distressed assets to tidy up bank balance sheets.
Improving risk appetite following new details on the US financial rescue plan, which have further weakened the dollar, helped push oil prices to their highest intraday level in 2009 on Monday and sent Asian stocks to their best level in two months on Tuesday.
But demand fundamentals remained weak, making further price rises uncertain.
China’s refined fuel stocks rose 11% in February despite a sharp post-holiday rebound in domestic sales, media reported on Tuesday, suggesting that demand in the world’s No. 2 consumer may be weaker than thought.
US light crude for May delivery fell 18 cents to $53.62 a barrel by 12:15am having settled at $53.80, up $1.73 on Monday.
London Brent crude was down 27 cents at $53.20.
“Any upside should be short-lived as commodity markets are once again behaving as a proxy for the global economy,” said Jonathan Kornafel, Asia director of US-based Hudson Capital Energy in Singapore.
“Once traders digest the Treasury’s new plan and accept that any inflation/weak dollar danger is months if not a year away, the market will come back off hard,” he added.
A weaker US dollar often sends investors to US dollar-denominated commodities as a hedge against inflation.
The US dollar struck a 2-month low against the Australian and New Zealand dollars as the global stock market rally reduced the safety appeal of the greenback, which tends to gain at times of severe market stress.
The US government on Monday offered a raft of incentives for private investors to help rid banks of up to $1 trillion in toxic assets that plunged the world economy into crisis.
The toxic asset plan got a vote of confidence from stock investors, with US stocks surging around 7% on Monday, their biggest one-day advance in nearly five months.
But US oil fundamentals have yet to show significant improvements, with a preliminary Reuters poll forecasting a 1.1 million barrels rise in US crude oil inventories last week with imports on an upswing.
Gasoline supplies were projected to be down by a moderate 200,000 barrels and distillate supplies, which include heating oil and diesel, were expected to be little changed.
The analysts made their forecasts ahead of weekly inventory reports to be released by industry group American Petroleum Institute on Tuesday at 2am and the US Energy Information Administration on Wednesday.
Technical analysis shows resistance at $59.74, a 23.6 percent Fibonacci retracement of the entire downward movement from the third to the four quarter of 2008.
Oil prices have climbed from under $33 last December due in part to aggressive supply cuts from Opec But prices remain almost $100 below last summer’s peak as the global economic crisis erodes consumption.
“Sentiment is positive as some risk appetite returns. But signals are running ahead of fundamentals,” said French bank Societe Generale in its Oil Drivers report.
The bank’s analysts see GDP and demand still weak for the time being while the Organization of the Petroleum Exporting Countries (Opec) has decided against further supply curbs.