Oil recovers to above $73 on surprise inventory drop

Oil recovers to above $73 on surprise inventory drop

Singapore: Oil moved up above $73 a barrel on Wednesday, after falling more than $1 the previous day, supported by industry data showing an unexpectedly large drop in US crude stocks, but gains were curbed by the steady dollar.

Crude inventories in the world’s largest oil consumer fell 5.8 million barrels last week, bucking expectations for an increase, as refiners boosted fuel production, the American Petroleum Institute (API) said.

US crude for January delivery rose 50 cents to $73.12 a barrel by 8:28am, after falling by $1.31 on Tuesday. NYMEX crude hit its lowest level since late November at $72.43 in the previous session, and has lost 7.3% since prices last rose on 1 December.

London Brent crude edged up 26 cents to $75.45.

The last five days’ losses are the biggest since prices fell 7.9% on Sept. 23 and Sept. 24, partly driven down by the recovery in the dollar.

“The draw in crude stocks is huge, even though oil imports have been rising," said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd.

“Refining rates were up 1.3%age points and we could be seeing the first signs of a recovery in fuel demand in the United States," he said, adding that some support may come from the products side as refinery margins may be improving as crude prices weaken.

API data also showed gasoline inventories fell 753,000 barrels, while distillates, which include heating oil and diesel, rose 1 million barrels.

However, crude stocks at Cushing, Oklahoma, the delivery point for crude traded on NYMEX, rose 1.5 million barrels, rising steadily for several weeks and helping to push down the price of front-month crude futures and creating the deepest front-month contango discounts since August.

Despite hopes of emerging recovery in oil consumption, crude continued to be under strain as the EIA revised downwards its forecast for 2010 global demand growth.

Further pointers on US stockpiles will come from the weekly Energy Information Administration (EIA) data due later on Wednesday, with an expanded Reuters poll calling for a 600,000-barrel rise in crude stocks.

Distillates stockpiles are expected to have fallen by 600,000 barrels, with demand up for heating oil due to colder weather in the US Northeast, a major market for winter heating oil, while gasoline was expected to have risen by 1.5 million barrels.

Oil has surged to a high for the year of $82 a barrel in October, from below $33 last December, and Wednesday’s price rebound was limited by the recovering U.S. currency.

The dollar index hit a one-month high of 76.331 in early Asian trade before easing back by 0.2%, and the euro fell to a one-month low versus the greenback, as investors sold positions in riskier assets ahead of the year-end, partly due to rising debt problems for Greece and Dubai.

The firm UScurrency makes dollar-denominated commodities more expensive for holders of other units, and also pressured gold, which made some gains on Wednesday but hovered near three-week lows, while Asian equities fell on fears over the spluttering economic recovery.