Singapore: Oil hovered above $73 a barrel on Wednesday, giving up some of the previous day’s gains after data showed a large build in US crude stocks, signalling persistently weak demand in the world’s top energy consumer.
Oil had settled more than 2% higher on Tuesday, buoyed by a weaker dollar, gains on Wall Street, and a huge snowstorm looming over the US Northeast, the world’s largest consumer of heating oil.
The optimism was dashed by data from the American Petroleum Institute (API) showing a surprisingly large rise in US crude and gasoline inventories last week, though developments in the financial markets will also affect prices, one analyst said.
“The market should not get too bearish despite the rise in weekly inventories, because of the snowstorms sweeping across the Northern Hemisphere,” said Keiichi Sano, general manager of research at Tokyo-based SCM Securities.
“Oil should not fall below $70. It will remain driven by the dollar’s movements and the mood in the financial markets.”
US crude for March delivery fell 53 cents to $73.22 a barrel by 9:03am, after settling at $73.75 per barrel on Tuesday.
London Brent crude was down 64 cents at $71.49.
Crude prices are down nearly 8% this year to stand at about half their July 2008 high of more than $147 a barrel.
US crude inventories jumped by 7.2 million barrels to 337.6 million barrels last week, against expectations of a rise of 1.5 million barrels, and despite a drop in crude imports and weekly crude runs.
Gasoline inventories also rose more than expected, climbing 1.6 million barrels to 228.8 million barrels, exceeding analyst estimates of a 500,000 barrel build.
Traders will await a report from the Energy Information Administration (EIA) due on Friday for further clues on the rate of demand recovery in the world’s largest oil user.
The EIA said Tuesday its weekly data, normally released on Wednesdays at 10:30am EST, will be delayed until Friday due to the snowstorm blanketing the US capital.
US heating demand this week is seen 11.5% above normal, due to the storm sweeping across the US mid-Atlantic, weather services said.
The blizzard, the second to hit the US East Coast in the past week, shut U.S. government offices in Washington for the second day on Tuesday.
Further price support came from the weaker greenback, after investors unwound short positions in the euro on reports that a rescue package for Greece was in the works.
A senior German ruling coalition source told Reuters euro zone governments had decided in principle to help Greece.
Concerns about Greece’s public finances and the potential contagion effects have hit the euro and soured risk appetite in recent weeks.
European Union leaders will hold a special summit on the economy on Thursday and speculation is swirling that a package will be hammered out soon for Greece.
EU Economic and Monetary Affairs Commissioner Joaquin Almunia said the situation in Greece was difficult and a common concern for the EU.
Oil tends to rise when the dollar falls, making crude and petroleum products cheaper for non-dollar buyers. Weakness in the dollar also encourages investors to move into more tangible investments such as commodities.
Investors increasingly take trading cues from wider economic data, as they await signs of a recovery in the global economy and a potential rebound in flagging energy demand.
Crude prices have been hit by data showing bulging fuel stockpiles in the United States despite cold weather, concerns about slower Asian demand if China further tightens its monetary policy, and more recently, jitters over Europe’s financial stability.
Geopolitical tensions over Iran’s nuclear program could also help underpin oil prices.
US President Barack Obama said on Tuesday the international community was moving “fairly quickly” toward imposing broader sanctions on Iran, as the Islamic Republic defiantly expanded its nuclear program.
Obama said Iran’s refusal to accept a UN-brokered atomic fuel swap deal suggested it was intent on trying to build nuclear weapons, despite its insistence that its nuclear program was only for the peaceful generation of electricity.