Oil edges higher as dollar weakens and US gasoline stocks drop

Friday, 29 October 2010 03:06 - - {{hitsCtrl.values.hits}}

Singapore-SINGAPORE (Reuters) - Oil gained on Thursday as the dollar weakened and U.S. gasoline stockpiles posted a surprise drop, while doubts lingered about the size of expected monetary stimulus by the Federal Reserve.

U.S. crude for December gained 16 cents to $82.10 a barrel at 11:47 p.m. ET, after falling nearly 1 percent on Wednesday, while ICE Brent added 2 cents to $83.25. The dollar slid more than 0.4 percent against a basket of currencies. .DXY

Most leading economists expect the Federal Reserve to buy between $80 billion and $100 billion worth of assets per month under a new program to bolster the struggling U.S. economy, a Reuters poll found on Wednesday.

U.S. gasoline inventories fell by 4.4 million barrels last week, the Energy Information Administration (EIA) reported on Wednesday, dampening the bearish effect of greater-than-expected gains in crude stockpiles of more than 5 million barrels.

“I see the decline in gasoline stocks as quite positive for the oil market, especially because we don’t usually see these drops this time of year,” said Ben Westmore, a commodities analyst at National Australia Bank.

Still, “there is some talk in the market that the amount of Fed QE won’t be as big as previously expected,” Westomore said, referring to an injection of funds into the economy through bond purchases in a process known as quantitative easing, or QE.

Estimates for how long the Fed will print money and how much it will eventually spend varied widely, from $250 billion to as high as $2 trillion in the Reuters survey of economists.

Participants deemed the impact of the asset buying could be limited given that markets have already priced in the effect of another big round of monetary stimulus.

Although U.S. oil demand jumped on a week-to-week basis, total U.S. product demand fell 0.3 percent in the four weeks to October 22 from a year earlier, the EIA said, with gasoline use down 0.8 percent in the period.

“It’s not an overly positive picture if you take some trends over the past four weeks,” Westmore said. “If you look at the economic indicators, they continue to show the economy is pretty sluggish.”

Demand for a range of long-lasting U.S. manufactured goods unexpectedly fell last month and a gauge of business spending plans also dropped, underscoring the economic recovery’s tepid pace.

The dollar rose while stocks and commodities fell on Wednesday on doubts over how aggressively the Federal Reserve is going to attempt to stimulate the flagging U.S. economy.

Investors had been pricing in large-scale bond purchases by the Fed. That view lifted equities, commodities and emerging market assets in recent weeks while the dollar fell because more Fed injection of funds into the economy via quantitative easing would lower the currency’s value, at least in the short term.

Oil will average over $83 a barrel in 2011, a Reuters poll showed, as expectation that a new round of U.S. monetary stimulus would shore up the economy led analysts to raise forecasts for the first time in six months.

Most French oil refineries were set to start outbound deliveries of fuel as work stoppages ended at two plants on Wednesday, further easing a strike movement that has led to pump shortages across France.