Brent futures held near USD 109 a barrel on Tuesday as forecasts of a third straight drop in weekly US crude inventories raised hopes of a steady revival in demand growth in the world's biggest oil consumer.
Confirmation later in the day of the expected fall may push the US oil benchmark to a new high for the year, but further gains in the dollar may overshadow those numbers.
Brent crude rose in early trade as high as USD 109.22 a barrel – just off a three-month high hit on Monday – and was trading down 16 cents by 0402 GMT at USD 108.93.
US oil slipped 27 cents to USD 106.05, down more than a dollar from this year's high of USD 107.45 touched on July 11.
"If the (inventory) forecast is confirmed, we may see US futures rise above USD 108 a barrel and touch a new high for the year," said Ryoma Furumi, a commodity sales manager at Newedge in Tokyo. "But without any other fundamental factors, broader macroeconomic data and numbers will influence oil for today."
Data continues to be mixed, however, with US retail sales rising less than expected in June, while a separate report showed factory activity in New York state accelerating in July.
Investors are for now sticking with the view that the Federal Reserve will start reducing its bond buying this year and scrap it by mid-2014, with no surprises expected from Chairman Ben Bernanke's testimony on Wednesday.
The dollar held to a moderate recovery from last week's sell-off, helping to cap any further upward moves in oil. A strong greenback makes it more expensive for holders of other currencies to buy dollar-denominated commodities and usually pressures prices lower.
Read more: commoditytradingtips.blog.com
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