Oil Rises on Weaker Dollar, Oil Stocks Eyed

Oil gained on Tuesday, lifted by expectations that inventories in the world’s top consumer fell for a seventh week, while it was also supported by dollar weakness.

Brent crude futures were up 65 cents at $116.70 after reaching a high of $117.16 while U.S. light, sweet crude added 75 cents to $96.98 after hitting a peak of $96.93.

An expected fall in U.S. stocks of oil are seen as keeping upward pressure on crude prices.

Inventories are likely to have fallen by 1.3 million barrels last week due to higher refinery utilization and a slide in imports, a Reuters poll showed ahead of weekly reports.

“Estimates that there’s been a drawdown in gasoline are giving prices a bit of a boost, but we are really range trading after the weakness we saw the previous session,” said Tony Machacek, futures broker at Jefferies Bache.

In the second-largest oil consumer China, refined oil product stocks at the end of June increased nearly 1 million tonnes from a year earlier.

They were at a normal level, after fuel consumption slowed down since mid-April, a government report showed on Tuesday.

“China demand will have quite an impact on Brent as it buys a lot of Brent related crude oil. Chinese refiners usually need sweet crude from West Africa,” said a North Asian trader.

The dollar softened versus the euro and a basket of currencies on Tuesday as the single currency regained some ground after losses in the previous session on worries that the euro zone debt crisis will worsen.

A weaker dollar makes oil and other commodities more affordable for holders of other currencies.

However debt problems on both sides of the Atlantic kept riskier assets in check.

The White House said on Monday it was pursuing a last-ditch plan with Congress to raise the U.S. debt ceiling and avert a default that could plunge global financial markets into chaos.

Governments and banks in Europe struggled to reconcile competing proposals for a second bailout of Greece on Monday, three days before leaders meet to prevent the crisis from spreading through the region.

Italian and Spanish 10-year bond yields rose above 6 percent on Monday in the wake of stress tests on the region’s banks, pulling further away from German Bund yields and reflecting a low degree of confidence that policymakers can contain the crises.

Funding costs are perceived to be unsustainable if yields rise over 7 percent.

IEA, Oil Stocks

Oil was also supported by expectations that the International Energy Agency (IEA) would not release emergency stocks for a second time.

This was because there was no sign yet of the kind of shortage to mandate another dip into the West’s emergency oil reserves when a 30-day deadline for assessing the impact of a first release expires at the end of this week, traders and analysts said.

For another IEA release to take place, it would have to be endorsed by all 28 members of the energy consumer body. Germany and Italy are likely to resist any plans for a second release for now, a French government source told Reuters last week.

CNBC