Oil eased below $83 a barrel today after settling near a 15-month high a day earlier, as data showing a surprise build in US crude stocks outweighed expectations for robust heating fuel demand amid a cold spell.
Crude posted its 10th straight day of gains yesterday, as the dollar weakened and buoyed by forecasts of a bigger inventory drawdown next week due to freezing temperatures across much of the United States.
But any demand recovery in the world's top energy user appears patchy so far. US Energy Information Administration (EIA) data released yesterday showed an unexpected 1.3-million-barrel increase in crude oil stockpiles last week, while stockpiles of distillates, including heating oil, fell by a smaller-than-projected 300,000 barrels.
US crude for February delivery was down 41 cents to $82.77 a barrel by 0230 GMT, after settling up $1.41 a day earlier at $83.18, its highest close since October 9th, 2008. London Brent crude fell 38 cents to $81.51.
"On the charts, oil looks quite bullish - the next target appears to be $89-$90 - and it has got a lot to do with the cold weather, which is set to continue for a while," said Michelle Kwek, analyst at Informa Global Markets in Singapore.
Reflecting the boost from icy temperatures, the NYMEX February heating oil contract remained at 15-month highs. It settled up 0.41 per cent at $2.2032 a gallon yesterday, the highest close since finishing at $2.2099 on October 20th, 2008.
Arctic winds have pushed down into the Northern Hemisphere, freezing Europe and parts of Asia, and boosting demand for heating in the United States by some 21 per cent above normal.
Energy demand has also surged, especially in Britain and France, while heavy snow and record low temperatures in China prompted cities across eastern and central parts of the country to begin rationing power.
"But this price rally is driven more by sentiment and the weak dollar, rather than fundamentals, as inventories are still pretty high. This is largely due to the push by funds into higher yielding commodity assets at the start of the year," Kwek added.
The greenback was on the defensive today after minutes from the Federal Reserve's latest policy meeting suggested the possibility of more stimulus measures for the US economy.
Weekly US jobless claims, due later at 1330 GMT, as well as December non-farm payrolls data, due tomorrow, will also shape the outlook for the recovery of the world's largest economy, interest rates, and the dollar's direction.
Economists forecast a total of 447,000 new filings for first-time claims for jobless benefits in the week ended January 2nd, compared with 432,000 in the prior week.
Price support also came from the continuing talks between Belarus and Russia yesterday over the supply of Russian oil for 2010.
Belarus earlier insisted Russia should continue billions of dollars in oil subsidies, potentially complicating talks aimed at resolving a dispute over a pipeline that brings 10 per cent of Europe's crude to market.
Reuters