By V. Phani Kumar, MarketWatch
MADRID (MarketWatch) — Crude-oil futures rose on Tuesday, in a bid to shake a string of losses, drawing support from a rise in equities and a weaker dollar as analysts looked ahead to meetings of the Organization of Petroleum Exporting Nations and the U.S. Federal Reserve.
Oil futures for delivery in January CLF3 +0.73% rose 44 cents, or 0.5% to $86 a barrel in electronic trading. The contract moved on either side of Monday’s settlement on the New York Mercantile Exchange, when prices fell 37 cents to record a fifth consecutive day of losses.
Oil moved higher as the U.S. dollar fell ahead of Wednesday’s meeting of the Federal Open Market Committee on monetary policy, where the Fed is expected decide whether to continue its purchases of longer-maturity securities under a policy popularly called Operation Twist.
While Operation Twist, under which the Fed also sells shorter-term securities, expires at the year’s end, the central bank is expected by several analysts to expand its balance sheet to maintain its purchases of bonds with longer maturities.
“Market expectations have the FOMC opting for some additional purchases, and so some further expansion of the Fed balance sheet may already have been discounted by the market,” said Tim Evans, an analyst at Citi Futures.
“That said, there is some potential for a robust expansion in the Fed balance sheet that could weaken the dollar and motivate risk-on trade across a range of commodities, including crude oil,” Evans said.
The ICE dollar index DXY -0.25% , a measure of the greenback’s performance against a basket of six other major currencies, fell to 80.227 in late morning trade in Europe, down from 80.309 late in North America Monday.
Markets were also looking ahead to Wednesday’s meeting of OPEC, which represents some of the world’s largest oil exporting countries.
Evans said OPEC members would most likely decide to maintain production at the current quota of 30 million barrels per day, and that actual output may remain above that level, “implying an ongoing supply/demand surplus and downward fundamental pressure on prices.”
UBS strategist Julius Walker also said OPEC was “highly unlikely” to change its official production quota.
However, “whatever the group says after the meeting, our balances indicate that OPEC or individual members will need to cut output by [0.5 to 1 million barrels per day] in 2013 in order to prevent growing oversupply in the market and substantial downward pressure on prices. This really represents a challenge to Saudi Arabia, traditionally the swing producer,” he said.
Walker said that while the OPEC’s official production quota has been 30 million barrels a day since December 2011, the group’s actual production in 2012 was an average 31.5 million barrels per day, as it tried to contain oil prices. Read also: OPEC may appoint new secretary-general this week
January gasoline RBF3 +0.82% rose one cent to $2.61 a gallon.
January heating oil HOF3 +1.30% rose 3 cents or 1% to $2.93 a gallon, and January natural gas NGF13 +0.58% rose 1 cent, or 0.4%, to $3.47 per million British thermal units.
Varahabhotla Phani Kumar is a reporter in MarketWatch's Hong Kong bureau. Follow him on Twitter @MktwKumar.
