Oil inches up on strong dollar, inventories eyed

By Edward McAllister

NEW YORK (BestGrowthStock) – Oil rose slightly on Tuesday as bright U.S. economic data spurred optimism about recovery in the world’s largest energy consumer, overcoming pressure from a stronger dollar.

Ahead of a holiday-shortened weekend, traders were also positioning before weekly U.S. inventory reports roll in later on Tuesday and on Wednesday.

U.S. crude for May delivery rose 20 cents to settle at $82.37 per barrel in seesaw trade, rising earlier to $82.74. In London, Brent crude gained 11 cents to settle at $81.28.

U.S. consumer confidence rebounded in March while a closely watched housing index showed home prices rose in January for the eighth straight month, data showed on Tuesday .

The euro fell (Read more about the trembling euro. ) sharply against the dollar as investors took profits after two days of gains and as unease persisted about the euro zone’s fiscal health.

A stronger dollar can denote a flight to safer havens from assets deemed more risky such as equities and commodities, helping to pressure crude prices.

“It’s the dollar strengthening that has pulled oil prices from their highs today, after brighter economic data lifted prices earlier,” said Phil Flynn, analyst at PFGBest Research in Chicago.

Traders were also awaiting weekly U.S. inventory data, from the American Petroleum Institute (API) later on Tuesday and the Energy Information Administration (EIA) on Wednesday.

U.S. crude inventories probably climbed by 2.4 million barrels last week, posting their ninth consecutive weekly increase, according to an updated Reuters poll.

U.S. gasoline stocks are projected to be down by 1.5 million barrels, with distillate stocks, which include heating oil and diesel, down by 1.6 million barrels, the poll showed.

“People are awaiting inventory reports and if the forecasts take hold, they will not be helpful for prices,” said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

Prices have traded in a range between $69 and $84 this quarter, touching $82.78 on Monday. Prices hit $83.95 a barrel in January, the highest since October 2008 at the peak of the financial crisis.

U.S. non-farm payrolls probably increased in March, boosted by temporary census hiring and a snapback from February’s weather-related losses, a Reuters survey showed ahead of Friday’s key report.

This would mark only the second time payrolls have increased since the recession started in December 2007.

But the proximity of oil prices to the top of this year’s trading range and rising U.S. crude inventories offset gains.

“The market is not especially tight and the fundamentals that would underpin a sustained rise are not really in place,” said David Moore, a strategist at the Commonwealth Bank of Australia in Sydney.

Oil stored at sea has dropped by 24 million barrels from its peak in November 2009, Goldman Sachs said in a report on Monday.

“We expect the supply-demand balance to continue to tighten in 2010 as the global economic recovery continues to strengthen demand, draw inventories and draw OPEC spare capacity back into the market,” Goldman analysts led by Jeffrey Currie said.

Oil producers and consumers gathered at the bi-annual International Energy Forum (IEF) this week plan to call for greater oil market stability and transparency as prices hold near levels OPEC members laud as “perfect” for both groups.

OPEC would increase oil production if oil prices stayed “too high” for a long time, OPEC delegates said, indicating prices above $85 may be considered damaging to the world economy.

OPEC members with production targets have reduced compliance to just 50 percent in March with prices above $80 a barrel, a Reuters survey showed.

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(Reporting by Edward McAllister; Additional reporting by Gene Ramos in New York, David Sheppard in London, Alejandro Barbajosa in Singapore; Editing by Marguerita Choy)

Oil inches up on strong dollar, inventories eyed