Oil hovers below $79, market seeks fresh cues on economy

Oil hovers below $79, market seeks fresh cues on economy

Perth: Oil steadied at below $79 a barrel on Tuesday, pausing after three straight days of decline, as investors awaited fresh leads from the equities market as well as more economic data to gauge the pace of the global economic recovery.

Traders are also eyeing the weekly American Petroleum Institute (API) crude oil report, which should give an indication of the strength of energy demand in the world’s largest energy consumer.

US crude for December delivery crept up 5 cents to $78.73 a barrel by 0302 GMT, after settling down $1.82 at $78.68 on Monday.

London Brent crude was up 9 cents at $77.35.

Although crude prices have risen nearly 77% so far this year, they are still almost 47% below the record of more than $147 per barrel attained last July.

“There is a sense of caution in the air. The US equities markets have already retraced for two days and there is growing concern about the strength of the US economy," said Benson Wang, a trader at Commodity Broking Services in Sydney.

“The market seems to recognize that oil has been somewhat overbought, especially since there’s a high chance that the US jobless rate would hit 10%, which could put a serious strain on the recovery."

The VIX indicator, Wall Street’s favourite barometer of market volatility, jumped 9.16% on Monday, highlighting how skittish sentiment has become towards stocks and other riskier assets like commodities and growth-linked currencies.

Analysts said investors were likely to stay wary ahead of US consumer numbers for October and house price index data for August, both due later in the day. Also, some cautiousness among traders is likely to prevail ahead of third-quarter US gross domestic product (GDP) data on Thursday.

Analysts expect the US economy to expand 3.3% in the third quarter. Anything lower, like the shock GDP numbers from Britain late last week, could trigger another wave of selling in riskier assets.

Oil has lost about 4% since striking a 14-month high of $82 a barrel last Wednesday, weighed down by bearish economic data and as disappointing corporate earnings sparked doubts on the pace of a fledgling US recovery.

US crude inventories probably rose 1.4 million barrels last week, according to a preliminary Reuters poll ahead of an American Petroleum Institute’s weekly data later on Tuesday.

Distillate stocks probably declined 900,000 barrels, while gasoline stocks were seen down 300,000 barrels, the poll showed. The US dollar, seen as a safe-haven when doubts about a global recovery emerge, held a firmer tone on Tuesday, pulling away from recent 14-month lows, as investors unwound short positions and took profits in high-yielding currencies.

US total heating demand will be nearly 23% lower than normal this week as temperatures average near to above normal in the Northeast and the Midwest, the National Weather Service projected on Monday.