Singapore: Oil prices reversed earlier losses on Tuesday to rise above $87.50 a barrel, but continuing smooth traffic through the Suez Canal, despite political turmoil in Egypt, and expectations of a build-up in US crude inventories would probably continue to exert downward pressure.
US crude for March gained 13 cents to $87.61 a barrel by 1:32pm, while ICE Brent rose 41 cents to $99.66 a barrel.
“The market is not strong fundamentally,” said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd.
“Most people are looking at the higher inventories, and the pressure is building up.”
Oil prices were struggling to sustain gains earlier in the day before they fell below $87.30 a barrel at 9:24am.
“There’s pressure for crude oil prices to go down,” said Ken Hasegawa, a commodity derivatives manager at Japan’s Newedge brokerage.
“Fundamentally, I don’t think crude oil supplies are tight. The market needs a correction, and now is the time,” he said, adding that prices were up on the political tension in Egypt.
“WTI should come down to $85 a barrel this month, while the spread between WTI and Brent will likely be around $10.”
Egypt, a small oil and gas exporter, controls the Suez Canal and the Suez-Mediterranean (SUMED) oil pipeline, which together account for nearly 3 percent of daily global oil demand.
While transit through the canal has so far been unaffected by the crisis in the region, concerns remain that the turmoil might spread across the Middle East.
Egypt continues to be plagued as protesters on Tuesday called for a push to eject President Hosni Mubarak from power after the government conceded little ground in talks with the opposition and sought to squeeze demonstrators out of central Cairo.
Global oil prices could exceed $110 a barrel if political unrest in Egypt continues, Imad al-Atiqi, a member of Kuwait’s Supreme Petroleum Council said on Sunday.
Oil prices could also more than double to $200 per barrel if the Suez Canal closes because of the crisis in Egypt, though there is no sign of that happening at the moment, Venezuela’s oil minister Rafael Ramirez said last week.
Technical charts, however, turned bearish, indicating prices may drop from current levels towards $85, according to Reuters markets analyst Wang Tao.
CRUDE STOCKPILE SEEN UP
On the data front, investors were eyeing weekly inventory reports from the United States on Tuesday and Wednesday for trading cues.
The average crude stockpiles in the US were forecast up 2.5 million barrels for the week ended Feb. 4 as refiners continued to rebuild supply after drawing on inventories during much of December for year-end tax trimming, a survey showed.
Crude stocks were expected to be beefed up by another increase in oil stored at the Cushing, Oklahoma, delivery hub for crude oil futures traded on the New York Mercantile Exchange.
If that happens it would be a new peak at the hub, after stocks there rose 667,000 barrels to a record 38.33 million barrels in the week to Jan. 28, based on data from the U.S. Energy Information Administration (EIA).
The dollar index , which tracks the greenback against a basket of major currencies, fell 0.29 percent to 77.804 by 0753 GMT but was still above a three-month low of 76.881 plumbed on Wednesday.
A weaker greenback supports dollar-denominated commodities such as oil, making it cheaper for those holding other currencies.