Oil under pressure from dollar as currency link deepens

Oil under pressure from dollar as currency link deepens

Singapore: Oil fell towards $82 on Tuesday, under pressure from an expected gain in US crude stockpiles for three out of four weeks and a volatile dollar.

US crude for December fell 22 cents to $82.30 at 1:25pm, after earlier dipping by as much as 0.6% to $82.05 a barrel, still less than $3 from a five-month high of $84.43 on 7 October ICE Brent slid 18 cents to $83.36.

“It could be the oil market is just taking a breather and will just trade range-bound today," said Serene Lim, a Singapore-based oil analyst at ANZ.

Crude prices are more dependent on dollar fluctuations than at any time in the last 14 months as speculation intensifies that the US Federal Reserve will embark on a fresh round of monetary stimulus to boost recovery.

The inverse correlation between the dollar and oil has become deeply entrenched over the past few days because investors buy emerging-market shares and commodities as the greenback drops.

Oil on Monday climbed as the dollar weakened to a 15-year low against the yen and sales of previously owned US homes rose a greater-than-expected 10 percent in September, though they remained at depressed levels that point to a painful and protracted recovery for the housing market.

“There is still so much talk of quantitivate easing and excess liquidity coming into the market and that will push commodities higher," Lim said.

“We still have high commercial inventories and high OPEC spare capacity, so that will be capping investors’ appetite for oil."

Crude stockpiles in the US probably rose by 1.4 million barrels the week ended 22 October as imports piled up, a Reuters poll showed on Monday.

The gain in crude inventories was likely limited by higher refinery demand as refinery utilization probably rose 0.3 percentage point, to 82.8% of capacity.

Inventories for the two main categories of refined products likely went on opposite directions last week, with distillate stockpiles predicted to have dropped by 1.9 million barrels for a fourth consecutive week of declines and gasoline inventories seen rising by 500,000 barrels for a second straight week of gains.

Prolonged strikes in France probably dragged larger amounts of distillate fuel from the US, contributing to the expected stockdraw, analysts said.

Industry group the American Petroleum Institute (API) will release its inventory report on Tuesday at 2:00am, while government statistics from the US Energy Information Administration will follow on Wednesday at 8:00pm.

The US dollar steadied above the 15-year low versus the yen in Asia trade on Tuesday, while the euro came under some pressure after failing to hold above $1.4000 again.

The direct correlation between US crude and the euro on Tuesday jumped to its highest since March, after investors calculated that a Group of 20 meeting that produced no firm policy initiatives would leave market trends unchanged.

With the US Federal Reserve set to pump more money as early as next week to spur a flagging economy but still no clear consensus on how much cash they will inject, analysts expect the dollar to stay choppy.

Keeping the market guessing, New York Fed president William Dudley said whether an incremental or big bang approach to asset purchases by the Fed would work better depends on the economic context. Dudley also said he would put very little weight on what the market is pricing in.

Workers at eight out of France’s 12 refineries voted to continue striking over pensions on Monday, but three of the other five plants voted to end action, union officials said.

The eight plants to have voted already to prolong stoppages included all six of Total’s French refineries, as well as Ineos’ Lavera plant and Petroplus’ Petit Couronne plant.

Tropical Storm Richard weakened to a tropical depression on Monday as it moved across southern Mexico and headed for the Bay of Campeche, but did not look to pose a major threat to Mexican or US oil operations.

China will raise retail fuel prices by about 3% from Tuesday in its first hike in seven months, a move bringing prices back to near record highs but unlikely to dampen oil demand in the world number-two consumer.