LONDON – Oil rose slightly on Tuesday, boosted by dollar weakness, but gains were muted because of expectations OPEC might raise its production target this week and to worries about the demand outlook.
U.S. crude has stayed in the $2 range for a month as concerns that global growth would hit demand have been offset by supply worries caused by civil war in Libya and turmoil in Syria and Yemen.
Investor eyes are firmly fixed on this week’s OPEC meeting, at which major oil producers are at odds over whether to boost production quotas. Saudi Arabia and its Gulf Arab allies may struggle to push more than a cosmetic increase in oil supplies.
“Sentiment is still cloudy ahead of OPEC. The only effect counteracting at the moment is the weaker dollar, which has seen a continuation of the trend from last week in the aftermath of the weaker U.S. data,” said Carsten Fritsch, an analyst at Commerzbank.
The dollar fell broadly to hit a one-month low against a basket of currencies and the euro and to a record low vs. the Swiss franc after a Chinese official warned of the risks of excessive dollar holdings.
Top oil exporter Saudi Arabia and other Gulf producers, including Kuwait and the United Arab Emirates, favour a hike in output on concerns that high oil prices are limiting economic growth.
Saudi Arabia is already planning to hike its own oil output by 200,000 to 300,000 barrels per day in June.
But delegates gathering in Vienna for the OPEC meeting on Wednesday said a deal to do anything more than just close the gap between OPEC’s out-of-date official production target and actual supplies could prove difficult.
“We’ve been stuck in a range, and investors are waiting for the outcome of the OPEC meeting, to see what the outlook is and how it redraws the map for world supply and demand,” Olivier Jakob, an analyst at Petromatrix.
PRICE PRESSURE
He said that any increase in supply could depress prices significantly.
“If Saudi puts any incremental barrels on the water, it will be very bearish and we could see WTI move to below its 200-day moving average at around $91.”
High fuel prices and weak U.S. economic numbers could prompt the U.S. government’s energy forecasting agency to cut its global oil demand estimate for the second month running.
But U.S. oil inventory reports from industry and government could show that stockpiles fell slightly last week, a Reuters poll of analysts on Monday showed. Gasoline and distillate stockpiles were expected to rise.
The United States called for a peaceful and orderly transition in Yemen in the absence of President Ali Abdullah Saleh, who is recovering from shrapnel wounds in Saudi Arabia.
Syrian forces fought gunmen in battles that left more than 120 members of the security forces dead, state television said in the first report of large-scale armed clashes in the revolt against President Bashar al-Assad.
In Tripoli, loud explosions shook the town in what appeared to be stepped-up NATO air strikes on the Libyan capital on Tuesday morning, and rebel forces seized a town in the west, driving out Muammar Gaddafi’s forces.
