Oil falls on stronger dollar, US supply jump

Oil falls on stronger dollar, US supply jump

Singapore: Oil fell on Wednesday as the dollar strengthened and after an industry report showed a bigger-than-expected gain in US crude inventories last week.

US crude for December fell 36 cents to $82.19 a barrel at 6:18am, more than $2 from a five-month high of $84.43 reached on 7 October ICE Brent fell 32 cents to $83.34.

The link between the dollar and the price of oil remained near its strongest in 14 months amid speculation that the Federal Reserve will inject money into the US economy.

But the greenback rose 0.1% against a basket of currencies on Wednesday after the Wall Street Journal reported the Fed will unveil a programme of US Treasury bond purchases worth a few hundred billion dollars over several months, compared with investors’ base-case scenario of an initial commitment to buy at least $500 billion in debt over five months.

“The dollar is clearly a major driver of oil prices at present, and our prediction that this would be the case is now being confirmed by the increased correlations evident in the market," JP Morgan analysts headed by Lawrence Eagles said.

Consumer confidence in the US rose slightly in October but remained near historically low levels as concerns about the labor market persisted, a report showed on Tuesday, reinforcing the view the Fed will act when it meets next week.

US crude inventories jumped by 6.4 million barrels in the week to 22 October, the American Petroleum Institute reported on Tuesday, more than six times the forecast gain of 1.1 million in a Reuters poll and despite an increase in refinery utilisation.

Distillate inventory statistics were also bearish, showing an increase of 818,000 barrels, compared to expectations for a drop of 1.5 million barrels. But gasoline posted a surprise decline of 1.8 million barrels, compared to a projected 200,000 barrel gain.

Government statistics on US inventories and demand from the Energy Information Administration will follow on Wednesday at 8:00pm.

The dollar edged up on Wednesday on doubts the Fed will buy assets as aggressively as expected to pump more money into the system, while commodity stocks led Asian stocks lower.

Japan’s Nikkei average rose 0.6% on Wednesday after two days of losses, helped by a halt in the yen’s advance against the dollar and short-covering in exporter shares.

Oil refinery strikes in protest against French President Nicolas Sarkozy’s unpopular pension reform eased on Tuesday, with walkouts ending at several plants and unions sounding more open to talks with employers.

Cayo Arcas, Mexico’s main oil exporting port in the Gulf, reopened on Tuesday afternoon as the wake of Hurrican Richard dissipated. The port was briefly shut in the morning after the storm passed through the Bay of Campeche.