Oil slips as dollar stronger, Fed stays put

By Robert Gibbons

NEW YORK (BestGrowthStock) – Crude oil prices slipped on Tuesday, seesawing with the dollar and pressured after the Federal Reserve said economic recovery was still to slow and reaffirmed the central bank’s commitment to its bond-buying plan designed to stimulate the economy.

Crude oil prices seesawed as expectations that weekly oil inventory reports would show gasoline stockpiles rose last week and a separate report of weak fuel demand pressured U.S. gasoline futures.

But with cold weather in the United States and Europe boosting heating fuel demand, heating oil futures rose and helped limit crude oil’s losses.

Crude for January delivery fell 33 cents to settle at $88.28 a barrel, having seesawed between $87.74 and $88.95. Prices reached a 26-month high of $90.76 on December 7.

January crude oil options on the New York Mercantile Exchange expire on Wednesday, ahead of the January futures contract’s expiration on December 20.

Total U.S. crude trading volume was above 542,000 lots with about an hour left in post-settlement trading, still trailing the previous session’s 589,228 lots traded and the 30-day average of 667,478 lots.

ICE Brent crude for January managed a 2 cent gain to settle at $91.21 a barrel, trading between $90.68 and $91.73, and slipping in post-settlement trading.

The January Brent contract expires on Thursday.

Brent prices were supported by news that daily crude oil output from nine of the main North Sea streams will fall by more than 5 percent in January, according to data compiled on Tuesday from trading sources.

The dollar rose slightly against the euro and yen and the dollar index (Read more about the global trade. ) (.DXY: ) was up after the Federal Reserve announced after its policy meeting that the economic recovery was still too slow to bring down unemployment, and reaffirmed its commitment to purchase $600 billion in bonds to stimulate the economy.

The stronger buck pressured dollar-denominated oil and other commodities, by making them costlier to purchase for non U.S.-based investors.

Strong Chinese implied oil demand for November has bolstered demand expectations even as investors remain cautious after China did not raise interest rates despite data at the weekend pegging November inflation at a 28-month high.

The positive sentiment in financial markets will not, however, be enough to sustain an oil price above $90 unless supported by strong fundamentals while downside financial risk from the European debt crisis remains, analysts warned.

“The support is coming from the financial side. I would not be surprised to see the oil prices stagnating or even falling (in the coming days),” Eugen Weinberg, head of commodity research at Commerzbank in Frankfurt told Reuters, adding that supply and demand did not justify the current price levels.

Adding to demand concerns, retail gasoline demand fell 2.7 percent last week as prices rose to their highest level this year, a report from MasterCard Advisors said on Tuesday.

Demand was also 1.3 percent lower than the year-ago period, the report said.

EYEING U.S. OIL INVENTORIES

U.S. crude oil inventories were expected to have declined 2.5 million barrels in the week to December 10, according to a Reuters expanded survey of analysts released on Tuesday before the American Petroleum Institute releases its weekly crude stocks report at 1630 EST (2130 GMT) .

But gasoline stockpiles were expected to be up 1.7 million barrels and rising stockpiles were expected to ease recent supply tightness in the New York Harbor region delivery point for the gasoline contract.

Distillate inventories were forecast to be down 500,000 barrels as investors will eye the impact on stockpiles as cold weather in the Midwest and Northeast and northern Europe boosted heating fuel demand.

(Additional reporting by Gene Ramos in New York, Una Galani in London and Rebekah Kebede in Perth; Editing by Alden Bentley)

Oil slips as dollar stronger, Fed stays put