Oil dips towards $74 on firm dollar

Oil dips towards $74 on firm dollar

Singapore: Oil eased towards $74 in thin pre-holiday trade on Wednesday, as the firm dollar outweighed bullish data showing a hefty drawdown in US crude stocks and an unexpected fall in gasoline supply.

Crude inventories in the world’s biggest oil consumer fell 3.7 million barrels last week, against analysts’ expectations of a 900,000-barrel drop, the American Petroleum Institute (API) said on Tuesday.

US crude for February delivery edged down 9 cents to $74.32 a barrel by 9:00am, after rising 68 cents to settle at $74.40 a barrel on Tuesday. Prices have risen almost $6 since hitting a more than two-month low of $68.59 a barrel on 13 December.

London Brent crude for February fell 16 cents to $73.30.

“The API data (is bullish) and the market anticipates EIA data tomorrow to show resonably significant drawdown in the crude stocks as well as in some of the oil products stocks," said Ben Westmore, commodities economist at National Australia Bank.

“That’s sort of positive short-term sentiment," Westmore said.

Gasoline inventories fell 1.1 million barrels as imports also slipped, API data showed, after a Reuters poll forecast a 1.2 million-barrel build.

Inventories of distillate fuels fell by just 745,000 barrels, against forecasts for a 1.9 million-barrel drop, despite cold weather in the US Northeast, the biggest heating oil market in the world. Total US heating oil inventories fell by 993,000 barrels.

The US Energy Information Administration’s weekly report is due at 09:00pm on Wednesday.

The recovery on oil was curbed by the strengthening dollar which hit a two-month high versus the yen, with buyers attracted by US yields at four-month highs and the steepest yield curve on record. The US currency also held firm against currency basket.

Oil prices have often retreated this year when the dollar rises, making crude more costly for holders of other currencies. A firmer dollar can also signal investors plowing funds into safe havens and away from assets considered more risky, including commodities.

Gold edged up on Wednesday as bargain hunters resurfaced after the price dropped to its weakest in seven weeks the previous day, but a firmer US dollar was likely to cap gains.

Further optimism about an economic recovery was reflected by surprisingly strong sales of previously owned US homes, which boosted US and European shares closed around 14-month highs on Tuesday.

US existing home sales jumped 7.4% in November to an annual rate of 6.54 million units, the fastest pace since February 2007.

“Obviously there is some macro indicator in the US that also looks quite supportive as it continues to show the recovery is in good feel," said Westmore.

As expected, the Organization of the Petroleum Exporting Countries (OPEC) left output policy unchanged with the implied target for members’ output, excluding Iraq, at 24.84 million barrels per day (bpd).

But concerns remain about compliance and the organisation’s ability to persuade members to stick to quotas.