Oil steadies above $91 ahead of US inventory data

Reuters, Wednesday 29 Dec 2010

Oil prices affected as much by the cold weather as by the dollar's performance

Oil steadied at above $91 a barrel on Wednesday ahead of U.S. inventory data expected to show a drawdown in crude and distillate stocks in the world's largest oil user.

NYMEX crude for February delivery slipped seven cents to $91.42 a barrel by 0531 GMT, while ICE Brent crude fell 14 cents to $94.24.

U.S. oil prices climbed to a 26-month high of $91.88 on Monday, driven by a broad spectrum of factors ranging from the dollar and cold weather to OPEC and surging global fuel demand.

"Investors are especially keen to follow whatever factor is most supportive of prices moving higher," said analysts at Cameron Hanover in a research note.

Bullish money managers have stormed into the oil market, setting a fresh record high for net long crude positions on the New York Mercantile Exchange.

Oil's rally looked all the more secure due to rhetoric from several OPEC ministers, who have signaled $100 was a fair price.

Crude's rise, however, took a breather early Wednesday on forecasts for warmer temperatures in the snow-slammed U.S. Northeast, curbing demand in the world's top heating oil market.

"Oil is tracking the cold weather in the Northeast of the United States and also the dollar against the euro," said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd.

The icy weather has boosted distillate needs, which includes heating oil and diesel fuel, and U.S. stocks were expected to have fallen 500,000 barrels last week, a Reuters poll showed.

Crude inventories in the world's biggest economy were pegged to have fallen 2.9 million barrels, while gasoline stocks were seen up 1.5 million barrels.

The American Petroleum Institute is expected to report its weekly inventory data later on Wednesday, delayed by a day due to the Christmas holiday. The U.S. Energy Information Administration (EIA) will issue its weekly report on Thursday.

Oil prices remained strong despite poor U.S. economic data that dampened growing optimism for a recovery.

U.S. consumer confidence unexpectedly deteriorated in December, while prices of single-family homes fell almost double the expected pace in October.

The dollar index, which tracks the greenback's performance against a basket of major currencies, was largely unchanged at 80.301.

Oil also found support from heavy U.S. holiday travel, which boosted retail gasoline demand by 4.6 per cent last week. U.S. gasoline futures rose 0.54 cents to $2.4090 a gallon.

Technicals point to oil prices consolidating between $90.12 and $91.50, with a bias towards a drop to $90.12

Short link: