BS: As Oil prices fall below $79 ahead of U.S. supply report
OIL prices fell below $79 a barrel yesterday amid signs that U.S. crude demand remains weak and as the dollar strengthened, making commodities like oil more expensive for international investors.
By early afternoon in Europe, benchmark crude for December delivery was down 74 cents to $78.54 a barrel in electronic trading on the New York Mercantile Exchange. The contract added 23 cents to settle at $79.28 on Wednesday.
Oil has bounced between $76 and $81 for about a month as high U.S. crude inventory levels fuel investor doubts about a recovery in consumer demand.
The American Petroleum Institute said Tuesday that crude supplies rose last week, and traders will be closely watching the Energy Information Administration's inventory report later yesterday.
"Crude is encountering a lot of resistance at the $80 level because of the supply overhang and no clear signs of demand growth coming back in the U.S.," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.
"People talk about a jobless economic recovery. This has been a demand-less oil rally."
Shum's view was reflected in a monthly report on oil markets released by the Paris-based International Energy Agency, which said continuing low U.S. demand for diesel - strongly correlated to economic activity - cast doubts on how much more crude would be needed in the world's largest economy.
"It would seem that the 'real' U.S. economy, as opposed to the financial one, is struggling to recover, despite the end of the recession," the IEA said in its report.
At the same time, the IEA increased slightly its forecast for global oil demand to 84.8 million barrels a day in 2009, 1.7 per cent or 1.5 million barrels less than last year. In October, the agency's forecast for 2009 was of 84.4 million barrels a day.
Global demand was also seen improving in 2010 to 86.2 million barrels a day, 500,000 barrels a day more than in last month's report.
Oil has risen from $32 a barrel in December amid a surge in global stocks and a falling U.S. dollar. The Dow Jones industrial index rose 0.4 per cent Wednesday, but stock indexes in Asia and Europe were mostly lower yesterday.
Oil and other commodities like gold, which are priced in dollars, become cheaper to investors holding other currencies when the dollar weakens, but are less attractive when the dollar gains.
The euro was down to $1.4946 yesterday from $1.4976 late Wednesday in New York.
"(U.S. benchmark) WTI continues to be a price for the dollar rather than a price for crude oil," said analyst Olivier Jakob from Petromatrix in Switzerland. "We are less than certain that these fundamental inputs will be able to have more weight than the volatility of the dollar index."
In other Nymex trading, heating oil was steady at $2.06 a gallon. Gasoline for December delivery rose 0.73 cent to $2.00 a gallon. Natural gas for December delivery fell 1.2 cents to $4.49 per 1,000 cubic feet.
In London, Brent crude for December delivery fell 57 cents to $77.38 on the ICE Futures exchange.
