Oil dips as dollar jumps on U.S. easing doubts

By Gene Ramos

NEW YORK (BestGrowthStock) – Oil prices slid nearly 1 percent on Wednesday, pressured by a rally in the dollar as doubts percolated among investors about the size of a much ballyhooed U.S. economic stimulus move by the Federal Reserve.

U.S. government data showing a surprise drawdown of 4.4 million barrels in gasoline stocks last week, against forecasts that motor fuel supplies rose, helped limit losses.

Overall, the latest data showing that domestic crude inventories fell 5 million barrels, much more than forecast, though less than Tuesday’s industry report of a 6.4-million-barrel increase, disappointed investors.

U.S. crude for December delivery settled down 61 cents at $81.94 a barrel, slogging through the day’s low of $80.52. In London, ICE December Brent ended down 43 cents at $83.23 a barrel.

“Gasoline was firmer on the EIA (inventory) data, and that helped lift crude … crude also saw some late short-covering,” said Tom Bentz, a broker at BNP Paribas Commodity Futures Inc in New York

Oil prices had fallen 2 percent before the release of the U.S. Energy Information Administration’s inventory report in midmorning, as the dollar rose on mounting questions about how far the Federal Reserve will go to provide fresh stimulus to the flagging U.S. economy.

The negative correlation between the dollar and the price of oil was near its strongest level in 14 months in the run-up to the Fed meeting on November 2-3, when it is expected to detail how much money will be pumped into the U.S. economy.

A stronger dollar can pressure oil prices by making dollar-denominated oil dearer to users of other currencies and by pulling investment into other markets from commodities, which are viewed as riskier bets.

The more expensive greenback also hit a broad array of commodities.

WALL STREET DIPS, BUT OIL SEEN HIGHER

U.S. equities tumbled as investors appeared to be lowering expectations on how aggressively the Fed may move to give the economy a shot in the arm, helping drag down oil prices.

Speculation that financial markets may have priced in too much monetary easing by the Fed was stoked further by a Wall Street Journal report that the central bank’s Treasury bond-buying program was likely to be worth “a few hundred billion dollars.”

Investors had been counting on between $500 billion and $1 trillion in potential government asset-buying to help bolster the economic recovery.

“I think there’s a concern that maybe next week’s quantitative easing or stimulus package from the Fed may not be as big as the markets have probably been factoring in,” said James Hughes, a market strategist at CMC Markets.

The potential new monetary stimulus has led 33 analysts polled by Reuters to forecast that oil prices will average more than $83 a barrel next year.

It was the first time in six months that analysts had raised their forecast, but some said the revised outlook was fragile as the amount and delivery method of new U.S. monetary easing could still surprise to the demand side.

Combined with weak oil demand growth, that could put oil prices under pressure, the analysts said.

In France, seven out of 12 oil refineries were set to resume fuel deliveries as walkouts ended at two plants on Wednesday, further easing a strike movement that had resulted in shortages at the pump across the country.

However, workers at the key Fos Lavera oil hub, who have been on strike for a month, will continue their action until a deal is found with management over port reform.

(Additional reporting by Robert Gibbons in New York, Isabel Coles and Joe Brock in London; Editing by Walter Bagley)

Oil dips as dollar jumps on U.S. easing doubts