Oil firmer, doubts over Fed action curb gains

Oil firmer, doubts over Fed action curb gains

London: Oil prices edged up on Thursday supported by forecast-beating profits from Royal Dutch Shell and Italy’s Eni, as investors awaited US weekly jobless data due later.

The numbers are expected to give clues about the potential size and pace of a fresh US Federal Reserve stimulus package expected next week.

By 3:34pm, US crude for December gained 23 cents to $82.17 a barrel, after falling nearly 1% on Wednesday, while ICE Brent was 22 cents firmer at $83.45.

Shell, Europe’s largest oil company by market value, and Eni beat analyst forecasts with sharp gains in third quarter profits, boosted by higher oil and gas prices. But eyes were on the release of the latest weekly reading of US unemployment figures due at 6:00pm, for clues about the health of the world’s largest oil consumer, and ahead of the anticipated second round of monetary stimulus (QE2). Most economists expect the Federal Reserve to buy between $80 billion and $100 billion worth of assets a month under a new programme to shore up the economy of the world’s largest oil consumer, a Reuters poll found on Wednesday.

Analysts expect oil prices to remain under pressure ahead of the Nov. 2-3 Federal Open Market Committee meeting, on fears that the market may have already priced in the fresh round of monetary stimulus.

“The price will remain above $80 until the Fed meeting and then it depends on the outcome, but I think there’s a good chance that we will fall back below the $80 level next week when Fed measures disappoint market expectations," Commerzbank’s oil analyst Carsten Fritsch said.

Oil prices on Thursday temporarily disconnected from the dollar, which fell 0.4% against a basket of currencies . The link between the greenback and crude earlier this week was the strongest in 14 months.

“Just as the weaker dollar off the back of QE2 ‘pricing in’ has supported oil prices, a potentially stronger dollar off the back of QE2 ‘pricing out’ will likely undermine oil prices in the weeks ahead," Daniel Hwang, senior strategist market strategist at Gain Capital Forex.com wrote in a note.

Estimates of the length and amount of the Fed’s easing programme varied widely, ranging from $250 billion to as high as $2 trillion in the Reuters survey of economists.

Participants deemed the impact of the asset buying could be limited given that markets have already priced in the effect of another big round of monetary stimulus.

“It’s unlikely that quarterly earnings alone is going to provide the necessary stimulus for a recovery in commodities. I think there needs to be a very firm underlying picture of economic health in the US before we see any prolonged or sustained rally," Paul Harris, a natural resource analyst at Bank of Ireland, said.

The US unemployment figures due at 6:00pm, will total 453,000 compared to 452,000 in the previous week, according to economists polled by Reuters.

The US will also release GDP data on Friday, with third quarter growth expected up 2% from 1.7% in the prior quarter, lifted by an acceleration in consumer spending, a Reuters poll showed.

US oil demand jumped last week but gasoline inventories fell by 4.4 million barrels, the Energy Information Administration (EIA) reported on Wednesday, dampening the bearish effect of greater-than-expected gains in crude stockpiles of more than 5 million barrels.

Strike action at six French oil refineries ended, but oil shortages are likely to continue to bite as workers voted to continue protests at France’s two largest oil ports of Fos-Lavera and Le Havre.