Singapore: Oil fell to $71 a barrel on Friday, trimming an overnight gain of 3%, as the battered US dollar firmed after US Federal Reserve chief Ben Bernanke pointed to the chances for tighter monetary policy.
US crude for November delivery dropped by 74 cents to $70.95 a barrel by 12:31pm, after closing $2.12 higher on Thursday.
London Brent crude fell 75 cents to $69.02 a barrel.
In comments that supported the dollar, Bernanke indicated monetary policy might have to be tightened as an economic recovery takes hold, adding the Fed could remove its easy money policies even while its balance sheet remained bloated.
A weaker greenback supports oil because dollar-priced commodities become cheaper for buyers using other currencies.
“Oil prices have spiked up too much, so there is some consolidation now. Continuous concerns of a weak dollar will keep crude oil supported,” said Tony Nunan, a risk management executive at Tokyo-based Mitsubishi Corp.
Adding to the strength, Kuwait’s finance minister said on Thursday oil trading would remain in US dollars, the latest denial of a report this week of a move to replace the world’s reserve currency with a basket of currencies.
A poorly received US bond auction that capped gains in Asia-Pacific stocks markets was seen as a factor for lower crude oil prices.
The US government sold $12 billion worth of 30-year bonds on Thursday as the dollar fell to a 14-month low against a broad basket of currencies, which could have tempered appetite for US assets.
Higher Opec seaborne oil exports, excluding Angola and Ecuador, also weighed on the market. Such exports will rise 160,000 barrels per day (bpd) in the four weeks to 24 October, to 22.65 million bpd, according to Roy Mason, an analyst at British consultancy Oil Movement.
While lower US unemployment claims signalled a stabilizing labour market, brimming fuel inventories in the world’s top energy user remained a concern.
The US Energy Information Administration reported gasoline stocks leapt 2.9 million barrels last week, nearly three times the build that analysts had expected.
JPMorgan said in a research note gasoline was likely to do refiners more harm than good in coming years, as demand had fallen nearly 340,000 bpd from its July 2007 peak.
“While our expected 16% fall in US gasoline demand is impressive, we hesitate for now to link it to any larger trend in the global demand profile,” it said.
“We expect global oil demand growth will be overwhelmingly centred outside of the United States in the coming years and greater US efficiencies may have only a moderating impact on the overall global oil balance.”