London: Oil rose towards $80 per barrel on Wednesday after an industry report showed US crude oil stocks fell steeply last week, but gains were limited by doubts over the outlook for economic growth and energy demand.
Weekly data from the American Petroleum Institute late on Tuesday showed US crude inventories fell much more sharply than expected last week, dropping 4.4 million after storms in the Gulf of Mexico disrupted supplies.
Investors awaited a report from the Energy Information Administration at 9:00pm, considered the most reliable data on the US oil industry, to confirm the API figures.
“If the EIAs confirm the big drawdown, and I think they probably will, the market could move up sharply -- probably to above $80 per barrel,” said Eugen Weinberg, head of commodity research at Commerzbank.
US light crude oil futures for December delivery rose 60 cents to $79.74 a barrel by 2:50pm, adding to Tuesday’s gains of 24 cents.
London Brent crude gained 58 cents to $79.55.
Financial market will scrutinize US economic data due on Wednesday to gauge the health of the economy, after reports this week painted a picture of a slow recovery from recession with ample slack to cool inflation.
Indicators on Wednesday include US consumer prices, real weekly earnings and housing starts for October.
The United States is the world’s biggest oil consumer and recession there over the past 18 months has helped keep a lid on global demand for fuel. Expectations of economic recovery have helped propel oil prices higher this year but several analysts argue that the market may have moved too far too fast.
“Commodities, including oil, have seemed to defy gravity over the last few weeks, partly supported by the dollar, but also on a false assumption that economic recovery will lead to a further rise in prices,” said Weinberg.
“That is probably wrong because the economic recovery is already reflected adequately in the current prices,” he said.
The US currency, which fell to 15-month lows against other major currencies this week, has been helping drive commodities higher for most of this year as investors have sought hard assets to hedge against the depreciating currency.
The dollar slipped on Wednesday, after its biggest rise in three weeks on Tuesday, as traders awaited US inflation data.
The US currency had rallied following rare comments on the dollar by US Federal Reserve Chairman Ben Bernanke, comments later echoed by other Fed officials and European Central Bank President Jean-Claude Trichet..
The dollar has declined steadily since March against a basket of other currencies, a decline that has also helped sput buying of other commodities.
Gold hit a record high of $1,146.95 an ounce in Europe on Wednesday, as a dip in the dollar index fuelled momentum buying of the precious metal.
Oil has rallied from below $33 last December even though global demand fell year-on-year for the first nine months of 2009, according to the International Energy Agency.