NEW YORK/LONDON: Oil pared losses yesterday but was still trading lower as the dollar slid off its session high and as weak data in top oil consumer China muddied the demand outlook.
Brent oil was trading 36 cents lower at $104.20 a barrel at 11.33am EDT (1533 GMT), after climbing to $104.76 earlier and trading as low as $103.73. US oil was trading 14 cents lower at $95.89 per barrel, after trading between $95.19 and $96.25.
The US dollar strengthened early in the session on news that ratings agency Standard & Poor’s upgraded the credit outlook for the US government. It then pared gains after a top Federal Reserve official said that low US inflation means the government would continue its massive bond buying programme.
Oil prices tend to move in the opposite direction to the dollar. Commodities traded in the dollar become more expensive in other currencies as it rises and cheaper as it falls, generally bringing more buyers into the market, analysts said. China’s economy is losing momentum, with May exports and domestic activity struggling to pick up.
Refinery production dropped to a nine-month low and implied oil demand in the world’s number two oil consumer in May rose at its lowest rate since September 2012, compared with the year-earlier month, according to Reuters calculations.
US oil prices rose to a two-week high on Friday after a jobs data report showed a slight improvement in hiring. Trading volumes on Friday in the US front-month crude oil contract were at their highest level since November 2012, according to Reuters data.
That one piece of positive data was not enough to continue a rally into Monday as overall global economic data remain weak to neutral, analysts said.
“We’re pivoting around $94,” said Gene McGillian, an analyst with Tradition Energy in Stamford, Connecticut. “We can get a couple of dollar swings without a clear direction of where the market is going. If we get up to $98 we’ll find out if we really do have a rally on our hands.”
US stockpiles of crude and production are at or near record highs. Opec and the International Energy Agency (IEA) will release their monthly global oil demand reports today, with the US Energy Information Administration (EIA) to follow tomorrow.
The EIA estimated that global reserves of shale oil that can be drilled with today’s technology have shot up 10 times higher compared to an estimate from two years ago.
Reuters
