CG: Oil prices firmer on weak dollar, supply worries
LONDON - Crude oil rose to nearly $123 a barrel on Friday after three losing sessions, with support from a weaker dollar and expectations of tight gasoline supplies in the United States, the world’s largest oil consumer.
Front-month Brent crude futures were up 36 cents to $122.75 a barrel by 1351 GMT, recovering from their sharpest daily fall in more than three weeks.
U.S. crude futures were up 20 cents at $102.98 after their biggest two-day slide since mid-December.
Fears of supply disruption in the Middle East underpinned oil, but gains were capped by concern that some Western nations will release oil stocks, increasing supply and tempering prices. There is also a focus on the untamed euro zone crisis.
“Prices are still very range-bound,” said Amrita Sen at Barclays in London. “Overall prices are within a range, still constrained by fears on the upside of a strategic petroleum release and on the downside by the strong fundamentals and geopolitical concerns.”
In the first quarter of 2012, Brent futures rose more than 14 percent, tracking global equities. Investors began the year in ‘risk-on’ mode as the European Central Bank continued to offer cheap money to banks.
MSCI’s main global stock index, which hit an eight-month high this week, has rallied by around 11 percent this year.
The dollar index hit a one-month low against a basket of currencies, extending losses this week following dovish comments on U.S. monetary policy and softer economic data.
A weaker greenback supports dollar-denominated commodities such as oil and gold, rendering them cheaper for holders of other currencies.
“In terms of the first quarter, we’ve seen a significant escalation in geopolitical tensions and tighter-than-expected fundamentals,” Barclay’s Sen added.
“Unless we see a catalyst on either side, we will remain range-bound. There is a very high probability of a strategic release, so the market will be quite nervous to move too high too quickly bearing that in mind.”
STRATEGIC RELEASE
Despite the gains this quarter, Brent prices are down 1.47 percent from last Friday as the market begins to price in expectations of a coordinated release of stocks.
“Oil prices have recovered slightly this morning after suffering significant losses yesterday,” Commerzbank analyst Carsten Fritsch wrote.
“Weighing on the oil price is the ongoing debate about the release of strategic oil reserves, as this increasingly appears to be a real option.”
The surge in oil prices has prompted the United States, with Britain and France, to consider a release from emergency stockpiles to cut fuel costs. Other countries, including South Korea and Japan, may join the plan.
Data on Friday showed that U.S. consumer spending increased by the most in seven months in February.
Strong gasoline prices of almost $4 a gallon on average in the United States, the world’s largest consumer of the motor fuel, have become a hot issue ahead of the U.S. presidential election in November.
Traders say gasoline prices could climb higher if demand picks up after the shutdown of several refineries, with nearly 430,000 barrels per day of refining capacity already idled in the United States at the end of 2011.
Market sentiment was also cheered after euro zone ministers agreed to boost the currency bloc’s firewall.
Despite the announcement, the European Union is still under fire as investors remain undecided that Spain will successfully contain its budget deficit.
OPEC oil output has risen in March to its highest level since October 2008 as higher supply from Iraq and further recovery in Libya’s production offset a drop in shipments from Iran, a Reuters survey found on Friday.
Supply from all 12 members of the Organization of the Petroleum Exporting Countries has averaged 31.26 million barrels per day (bpd), up from 31.16 million bpd in February, the survey found, driven by a recovery in Libyan output.
Tough sanctions by the West targeting Iran’s nuclear programme have curbed oil exports from the Islamic Republic, and supply could tighten further from July 1 when a ban on European insurance cover for Iranian oil takes effect.
