Oil price steady near $84 per barrel

Oil was steady near $84 on Wednesday, capped by a stronger dollar as financial markets remained focused on Europe’s debt problems, while an industry report signaled a drawdown in U.S. fuel inventories may be slowing.

U.S. crude for January edged up 12 cents to $84.23 a barrel by 0244 GMT, after tumbling 2 percent on Wednesday. Prices still posted a third straight monthly gain, up by more than 3 percent in November, when they also touched a 25-month high of $88.63. ICE Brent gained 5 cents to $85.97.

Factories in China, the world’s second-largest oil user, raised output in November as shown by the official purchasing managers’ index (PMI), which climbed to a seven-month high. But rising input prices also signaled a need to tighten monetary policy to curb inflation, a move that would cut energy demand.

The euro suffered yet another setback on Wednesday, with the dollar up by more than 0.1 percent against a basket of currencies .DXY, after Standard & Poor’s threatened to cut the credit ratings of Portugal, inflaming a market already rocked by worries about Europe’s debt crisis.

“Weak equities and dollar strength capped the upside as fundamentals suggest physical supplies would remain adequate,” said Stefan Graber, a commodities analyst with Credit Suisse in Singapore. “In the U.S., inventories of crude oil, distillates and gasoline all remain above their five-year average.”

Inventories of distillates including heating oil diesel unexpectedly rose by 224,000 barrels last week in top consumer the United States, according to an industry report published Tuesday by the American Petroleum Institute (API).

Should the increase be confirmed in a government report from the Energy Information Administration (EIA) due on Wednesday at 1530 GMT, that would end a streak of nine consecutive weekly drops. The average forecasts from a Reuters poll of analysts is for a decline of 1.1 million barrels.

Gasoline stockpiles rose 1.1 million barrels last week according to the API, almost three times the projected 400,000-barrel gain.

U.S. crude inventories fell by 1.1 million barrels in the week through November 26, the API said, compared with expectations for a 900,000-barrel decline.

A drawdown of a bigger magnitude than that reported by the API “would bring oil inventories closer to their five-year average, which might provide the market with a positive impulse,” Graber said.

U.S. consumer confidence rose in November to its highest in five months and U.S. Midwest business activity grew faster than expected, providing further evidence of economic recovery.

Still, a faster-than-expected fall in prices of U.S. single-family homes in September underscored the hurdles remaining for the recovery.

S&P’s warning about Portugal came after Ireland on Sunday secured an 85-billion-euro bailout package from the European Union and International Monetary Fund, seven months after Greece was thrown a lifeline to tackle its debt problems.

Source: Reuters

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