London: Oil rose above $74 a barrel on Tuesday after a 2% fall the previous day, supported by a weaker dollar, but the slow recovery in energy demand and ample supplies limited gains.
The dollar fell after comments from Federal Reserve chairman Ben Bernanke dampened speculation of an early rise in US interest rates. A weaker dollar makes dollar-denominated commodities, such as oil, more expensive for holders of other currencies and tends to support oil prices.
“The Fed is committed to maintain low rates for an extended period of time in view of headwinds to the economy represented by weak job and credit markets,” said Harry Tchilinguirian, analyst at BNP Paribas.
“So the dollar can be expected to reverse yesterday’s gains and oil in turn move back up a little.”
US crude for January delivery was up 33 cents to $74.26 a barrel by 3:31pm, after settling $1.54 lower on Monday. Brent crude rose 46 cents to $76.89.
Oil touched its lowest level since November 27 earlier in the session. Until Monday, the market had traded in a range of about $75-$80 a barrel since mid-October.
Investors in oil have looked to economic indicators and to other financial markets, such as equities, this year for signs of a recovery that would support oil demand.
“The economy is still mixed,” said David Moore, Commonwealth Bank’s commodities strategist.
“While China is strong, the US is unlikely to see a smooth recovery and there will be periods of reversals. But the anticipation of a recovery will be supportive in the coming year.”
Oil has rallied to a high for the year of $82 a barrel reached in October from below $33 in December 2008, even though fundamentals of supply, demand and inventories are bearish in the view of many analysts.
Reports this week are expected to show US crude oil and gasoline inventories rose, adding to ample supplies. Crude stocks are expected to rise by 500,000 barrels and stocks of gasoline by 1.4 million barrels.
The American Petroleum Institute will release its supply report leater today. The US Energy Information Administration issues its snapshot on Wednesday.