Oil prices rebounds after a persisting fall due to the decline of inventories, and worries about eurozone. (photo: Reuters)
Oil prices rebounded on Wednesday as U.S. crude inventories posted their biggest weekly decline in eight years, but gains were tempered by a stronger dollar. Upbeat data on U.S. industrial and regional manufacturing activity also encouraged oil investors, outweighing earlier worries on euro-zone debt after a warning on Spain's credit rating. U.S. crude for January delivery settled 34 cents higher at $88.62 a barrel. Trading volume hit 714,043 lots, almost 6 percent above the 30-day average of 673,970.
In London, ICE Brent January crude ended up 99 cents at $92.20. "The dramatic drawdown in crude oil cannot be dismissed so easily." said John Kilduff, a partner at Again Capital LLC in New York. U.S. crude stocks fell 9.9 million barrels last week, the biggest weekly decline since September 2002, according to data from the U.S. Energy Information Administration. Refiners curbed imports and used more of stored supplies to reduce inventories for year-end tax purposes, the data showed. "Refiners have apparently decided to meet their crude demand from the large overhang of stocks and domestic production," said Bill O'Grady, chief investment strategist at Confluence Investment Management in St. Louis, Missouri.
U.S. crude imports fell as shipments from Canada, the top supplier, fell 19 percent, due to pipeline snags on the Enbridge system that delivers most of Canada's shipments to the U.S. But stocks at the key storage hub in Cushing, Oklahoma, the delivery point for oil traded on the New York Mercantile Exchange, rose 982,000 barrels last week, increasing for the fifth week in a row to hit the highest level since August. That helped push up Brent's premium over the U.S. benchmark West Texas Intermediate crude to $3.58 a barrel at the close, from $2.93 on Tuesday, marking the highest since May 14.
POSITIVE U.S. DATA, EURO ZONE WORRIES
U.S. industrial output rebounded in November to post its biggest gain since July, another sign of a faster pace of recovery in the fourth quarter, Federal Reserve data showed. Better than expected factory data in the New York region also further encouraged oil investors. A warning by ratings agency Moody's that it may downgrade Spain's credit rating rattled oil markets earlier. The renewed euro zone worries developed a day after the
U.S. Fed dampened expectations of rapid U.S. economic recovery, and compelling it to stick to a program of massive government bond buying to help stimulate the economy and create jobs.The dollar was broadly higher while the euro was more than 1 percent lower against the greenback on persistent worries about the euro zone's fiscal troubles. Against a basket of currencies, the dollar surged 1.1 percent, aided by the positive U.S. data, even though there was mild gain in consumer prices. A stronger dollar can depress dollar-denominated oil prices
as it makes fuel more expensive to holders of other currencies.
Strength in the greenback can also push investment into foreign exchange markets and out of from commodities. Freezing temperatures across the U.S. Northeast, the biggest regional market for winter heating fuel, helped pull up energy futures. December is on track to be the ninth coldest in region since 1950, according to forecaster MDA EarthSat Weather in Rockville, Md. Cold weather in Europe added to a brighter demand outlook for winter fuels. In New York, heating oil for January delivery gained 1.56 cents to end at $2.4835 a gallon, its highest since Dec. 3. The heating oil crack spread, the margin refiners make from processing crude to fuel, hit a high of $15.83 a barrel, also the loftiest since Dec. 3.