Oil prices settle steady on higher U.S. demand, weaker dollar

A view shows oil terminal Kozmino near Nakhodka
A view shows Chao Xing tanker at the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia August 12, 2022. REUTERS/Tatiana Meel
  • WTI, more active second-month Brent close 1% higher
  • Data from U.S. shows higher Nov. crude oil and fuels demand
  • Dollar index turns negative as inflation concerns ease
  • API shows U.S. crude, fuel stocks rose last week - sources

BENGALURU, Jan 31 (Reuters) - Oil prices closed steady on Tuesday after recovering from a near three-week low, drawing support from a weakening dollar and on data showing that demand for U.S. crude and petroleum products rose in November.

The more active second-month Brent contract settled at $85.46 a barrel, up 96 cents or 1%, while the U.S. West Texas Intermediate crude futures settled at $78.87 a barrel, up 97 cents or 1.3%.

More volatility on the day of expiration kept the front-month contract under pressure as traders closed positions, said Mizuho analyst Robert Yawger. The front-month contract settled at $84.49 a barrel, down 41 cents.

During the session, front-month Brent and WTI futures touched their lowest in almost three weeks as traders worried about prospects for further interest rate increases and abundant flows of Russian crude.

The Brent April futures and U.S. front-month WTI gained after the U.S. Energy Information Administration reported that demand for U.S. crude and petroleum products rose 178,000 barrels per day (bpd) in November to 20.59 million bpd, the highest since August.

Crude benchmarks were also supported by a weaker U.S. dollar, UBS analyst Giovanni Staunovo said. This makes dollar-denominated crude cheaper for foreign buyers.

The dollar index turned negative after U.S. data showed labour costs increased at their slowest pace in a year in the fourth quarter as wage growth slowed, bolstering expectations of the Fed slowing its interest rate increases.

Investors expect the Fed to raise rates by 25 basis points on Wednesday, with increases of half a percentage point by the Bank of England and European Central Bank the following day.

An OPEC panel is likely to recommend keeping the group's output policy unchanged when it meets on Wednesday, delegates told Reuters on Monday.

However, Tuesday's weakness in front-month Brent prices may cause concern in the group, Yawger said. This widened the contango in the market, which occurs when futures prices show a commodity's price is expected to be much higher in the future.

A Reuters survey shows 49 economists and analysts expect Brent crude to average more than $90 a barrel this year, the first upward revision since a poll in October, with gains likely driven by demand from top consumer China.

After settlement, market sources said the American Petroleum Institute reported that U.S. crude oil and fuel inventories rose last week.The U.S. Energy Information Administration will release official stockpiles data on Wednesday. Preliminary numbers by the API indicated a 6.3 million-barrel increase in crude stocks, which if confirmed by the EIA would be much higher than the 400,000-barrel rise forecast by analysts in a Reuters poll.

Reporting by Shariq Khan; Additional reporting by Rowena Edwards, Swati Verma, Trixie Yap Editing by David Goodman, Will Dunham and David Gregorio

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Shariq reports on energy markets with a focus on US physical refined products and global financial oil markets. He is a regular contributor to energy M&A and corporate moves at top shale companies including oil majors and top oil focused private equity firms. He was nominated for 2020 Reuters journalist of the year for exclusive coverage of mass layoffs and bankruptcies in the shale patch during the peak of the COVID-19 pandemic. Shariq graduated in journalism and holds six years of experience covering energy equities and markets. Contact: 918884014512