Oil slips as dollar gets stronger
Oil slipped on Thursday as the dollar strengthened, but was still trading near seven-week highs of around $81 as U.S. demand edged up with a recovering economy.
Total oil demand in the world’s top consuming nation grew 0.3 percent in the past four weeks from a year earlier, U.S. government data showed on Wednesday, raising expectations for an end to a 1-1/2-year period of sustained consumption decreases.
The dollar gained 0.13 percent against a basket of currencies .DXY, sending crude down 22 cents to $80.65 a barrel by 0523 GMT. The front-month contract touched $81.23 on Wednesday, its highest intraday price since January 12. London ICE Brent for April fell 15 cents to $79.10.
Greece’s budget-balancing pledges on Wednesday helped restore some appetite for risk, boosting the euro against the dollar. On Thursday, the spotlight focuses again on the euro zone, which will report revised gross domestic product for the fourth quarter.
“The oil market will trade in a range of $75 to $85 at least for the next two months, and it will possibly go above $85 by the middle of this year, depending on economic recovery,” said Ken Hasegawa, a commodity derivatives manager at brokerage Newedge in Japan.
China Investment Corp CIC.UL, China’s sovereign wealth fund, believes global commodity prices are outpacing the global economic recovery, fueled by loose monetary policies worldwide, a top official said on Thursday.
“Personally, I think the prices are a bit too high relative to the strength of real economic recovery,” Jesse Wang, CIC executive vice president and chief risk officer, said on the sidelines of a conference in Beijing.
DEMAND VS INVENTORIES
Prices have ranged $69 to $84 a barrel over the past few months amid uncertainty about the pace of economic recovery. But a decline in global crude inventories and the surplus held in floating storage has set the stage for an increase toward the $80-$90 range, according to Barclays Capital.
The latest data from the Joint Oil Data Initiative (JODI) implied that Asian demand has been growing by more than 2 million barrels per day from a year earlier, according to Barclays.
“If Asian demand can grow at such rapid rates when prices are in the $70 to $80 range, then prices cannot stay in that range for much longer,” Barclays analysts headed by Paul Horsnell said.
Interest rate decisions from the Bank of England and the European Central Bank are also expected on Thursday, followed by U.S. durable goods and factory order statistics for January. And on Friday, attention will turn to U.S. non-farm payrolls.
Some doubts remained about the pace of economic recovery. Newedge’s Hasegawa said it is still “slow,” adding that further oil price gains could be triggered by “short-covering” when prices reach $81.50 and $82.
U.S. crude inventories last week rose a larger-than-expected 4.1 million barrels, the Energy Information Administration (EIA) said on Wednesday.
The dollar had fallen against the euro on Wednesday as concerns eased about deficits in European countries. A weaker dollar tends to support oil prices, making dollar-denominated commodities cheaper for other currency holders.
Source: AP