Oil under pressure from dollar
Oil fell toward $82 on Tuesday, under pressure from an expected gain in U.S. crude stockpiles for three out of four weeks and a stronger dollar, as the currency’s volatility exposed the market to price swings.
Crude pared early losses as the dollar retreated from session highs, then fell back as the greenback recovered, with markets focused on the U.S. Federal Reserve carrying out a fresh round of monetary stimulus as early as next week.
U.S. crude for December fell 39 cents to $82.13 at 0247 GMT, after earlier dipping by as much as 0.6 percent to $82.05 a barrel, still less than $3 from a five-month high of $84.43 on October 7. ICE Brent slid 25 cents to $83.29.
“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.
“But there is still so much talk of quantitivate easing and excess liquidity coming into the market and that will push commodities higher. We still have high commercial inventories and high OPEC spare capacity, so that will be capping investors’ appetite for oil.”
The inverse correlation between the dollar and oil has become deeply entrenched over the past few days as investors buy emerging-market shares whenever the greenback drops.
Consequently, the direct correlation between U.S. crude and the euro on Monday 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.
Oil on Monday climbed as the dollar weakened and sales of previously owned U.S. 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.
RISING U.S. SUPPLIES
Crude stockpiles in the U.S. probably rose by 1.4 million barrels the week ended October 22 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 percent 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 U.S., contributing to the expected stockdraw, analysts said.
Industry group the American Petroleum Institute (API) will release its inventory report on Tuesday at 2030 GMT, while government statistics from the U.S. Energy Information Administration will follow on Wednesday at 1430 GMT.
The U.S. dollar steadied above a 15-year low versus the yen in early Asia trade on Tuesday, while the euro came under some pressure after failing to hold above $1.4000 again.
With the U.S. 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.
Japan’s Nikkei average edged lower on Tuesday as the yen stayed near a 15-year high against the dollar, but many investors took a wait-and-see stance as Japanese firms were heading into the peak of their earnings reporting.
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 U.S. oil operations.
China will raise retail fuel prices by about 3 percent 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.