Oil hovers near $79 ahead of U.S. stock data
Oil held near $79 on Wednesday as cold weather in the United States and an expected fall in both U.S. crude and distillate stocks including heating oil countered a firmer dollar, shoring up prices after a five-day rally.
U.S. crude for February delivery fell 13 cents to $78.74 a barrel by 1124 GMT (6:24 a.m. EST) in thin pre-holiday trade after touching a five-week high the previous day.
London Brent crude for February rose 13 cents to $77.77 a barrel.
A cold snap that has hit the main U.S. heating hub on the northeast coast has boosted demand for oil products and helped drain swollen distillate stocks that this summer were at 26-year highs. Temperatures will remain unseasonably cold for the next 48 hours, according to private forecaster Meteorlogix.
We are seeing the first signs of a concerted improvement in U.S. demand and distillates are falling, (high stocks of) which have been responsible for the bulk of the weakness so far, said Barclays Capital oil analyst Amrita Sen.
U.S. crude stocks are expected to fall by 2 million barrels in what would be the fourth straight week of draws, according to a preliminary Reuters poll of analysts ahead of the weekly government Energy Administration Information report at 1530 GMT (10:30 a.m. EST).
Distillate stocks, which include heating oil, are set to fall by 2.2 million barrels, the poll said.
Data from U.S. industry group American Petroleum Institute (API) released on Tuesday was mixed and showed a surprise 1.7 million barrel build in U.S. crude stocks and a 3.5 million barrel drop in distillates.
API data is generally just a lead to the EIA. That's the one that really causes the market to move, said Ben Westmore, commodities economist at National Australia Bank.
The U.S. dollar rose to a two-month high against the yen on Wednesday as more positive macroeconomic data has caused some to review their expectations for U.S. rate rises in 2010.
Weakness in the U.S. currency has been one of the factors behind the oil price rally this year as currency investors have fled the currency in search of commodity safe havens. A weak dollar also makes commodities such as oil cheaper for investors holding other currencies.
Oil prices are now trading at roughly double the levels seen this time last year, when they dipped below $40 a barrel.
As well as the EIA stocks due later on Wednesday, traders will be scouring U.S. macroeconomic data before making further bets on oil price moves in 2010. Analysts said that further confirmation that the economic recovery is underway could push prices above the $80 a barrel level.
Oil has the ability to be at $80 a barrel or slightly higher but it is unlikely to go above it unless there are further signs that the fundamentals are improving, said Sen.
The U.S. weekly mortgage market index will be published at 1200 GMT (7 a.m. EST) and the Kansas City manufacturing index for December at 1600 GMT (11 a.m. EST).
U.S. consumer confidence improved more than expected in December, according to a private report released on Tuesday.
Concerns about a potential supply impact of political developments in the OPEC member country Iran have also supported prices this week.
A representative of Iran's Supreme Leader Ayatollah Ali Khamenei said on Tuesday opposition leaders were enemies of God who should be executed under the country's sharia law.
(Additional reporting by Judy Hua in Singapore; editing by Anthony Barker)
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