Oil swings ahead of U.S. supply data, weak dollar

Both West Texas Intermediate and Brent benchmarks swung between gains and losses on Monday and traded lower in the early European session ahead of EIAs crude oil inventories report for the week ended October 11 that is expected to show U.S. crude supplies rose to the highest since July. A weaker dollar and higher U.S. demand in September supported prices. Rebels in Nigeria threatening to disrupt oil production in offshore fields also provided support.

On the New York Mercantile Exchange, WTI crude for delivery in December fell by 0.44% to $100.67 per barrel at 7:45 GMT. Prices held in range between days high of $101.22 and $100.57 per barrel respectively. The American benchmark fell by 1% last week after retreating 1.8% in the preceding five-day period.

Meanwhile on the ICE, Brent futures for December settlement traded at $109.70 a barrel at 7:45 GMT and shifted in a days range between $110.12 and $109.56 per barrel. The European benchmark added nearly 1% on Friday but settled the week 0.8% lower.

Oil prices were pressured on Monday amid expectations that EIAs crude oil inventories report for the week ended October 11 will show a surge to multi-month highs. According to a Bloomberg survey of analysts, U.S. crude supplies probably rose by 3 million barrels to 373.5 million, the highest since July. Motor gasoline inventories are expected to have declined by 1 million barrels, while distillate fuel stockpiles likely dropped by 2 million. Refineries’ operating rate is projected to have fallen to 85.5%, the lowest since April, as units were idled for maintenance works after the peak driving season in the U.S. ended in the beginning of September.

Michael McCarthy, a chief market strategist at CMC Markets in Sydney, said for Bloomberg: “We’ll move back toward more oil-specific drivers of the market and so the inventory numbers will be more important. In the short term, the market may move down to see if the real support will hold at $98 to $99 a barrel.”

The the industry-funded American Petroleum Institute reported last Wednesday that U.S. crude oil supplies rose more in the week ended October than projected. Inventories added 5.94 million barrels, underperforming expectations for a 2.2 million increase according to a Reuters poll. Supplies at Cushing, Oklahoma, the biggest U.S. storage hub and delivery point for NYMEX-traded contracts, rose for the first time since July. Motor gasoline supplies fell by 2.21 million barrels last week, API said, while distillate fuel reserves declined by 1.32 million barrels. API’s statistics are based on voluntary information from operators of pipelines, refineries and bulk terminals and are considered as less reliable than EIAs numbers.

The oil market however drew support on broad expectations that the Federal Reserve will delay trimming its monetary stimulus program until 2014. Richard Bernstein, CEO of Richard Bernstein Capital Management, said for CNBC: “An increasing number of people thought the economy was going to start hitting critical mass and that was all derailed by this thing. In the next month, we’re going to sort through the data and find out what’s going on. That could add a little volatility. I think the underlying trend is still positive, but it’s not like we have a booming economy… This is going to keep the Fed on the sidelines a little longer.”

A weak dollar underpinned the oil market. The U.S. dollar index, which measures the greenbacks performance against a basket of six major peers, traded at 79.74 at 7:44 GMT, up 0.07% on the day. The December contract shifted between days high of 79.80 and low at 79.68, near Fridays 8-1/2 month low of 79.55. The U.S. currency gauge fell by 1% last week, a second decline in three. A weakening of the greenback makes dollar-denominated raw materials cheaper for foreign currency holders and boosts their appeal as an alternative investment.

Prices also drew support after the American Petroleum Institute reported that U.S. oil demand rose by 2.7% in September compared to a year earlier due to export demand and a stronger economy. Oil demand surged 1.7% in the third quarter from 2012, while gasoline and distillate fuel consumption rose by 1.7% and 2.1% respectively.

Meanwhile in Nigeria, a rebel group threatened to violently disrupt oil production by targeting offshore oilfields. The group has carried out several attack since April. Kidnappings and bombings reduced Africas biggest producers output by more than 28% between 2006 and 2009, according to Bloomberg data.