December Benchmark Oil Delivery Down 39 Cents

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Crude Oil prices fell to near $82 a barrel Thursday in Asia after an unexpected increase in U.S. gasoline supplies suggested crude demand remains sluggish.

Benchmark oil for December delivery was down 39 cents to $82.15 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose $1.38 to settle at $82.54 on Wednesday.

The Energy Department’s Energy Information Administration said Wednesday that commercial crude inventories rose less than analysts expected, adding 700,000 barrels. But a surprise 1.2 million barrel jump in gasoline supplies dismayed traders.

“Demand is getting worse,” Cameron Hanover said. “Lower demand is also telling another element of the story of weakness in the U.S. economy.”

Crude prices Thursday broke out of a correlation with the U.S. dollar. For most of the past year, oil would rise when the U.S. currency fell since that makes dollar-based commodities more expensive for investors with other currencies.

But Thursday the dollar fell and crude prices also fell. The euro rose to $1.4044 from $1.3951 on Wednesday and the dollar slid to 81.04 yen from 81.12 yen.

In other Nymex trading in November contracts, heating oil fell 0.72 cent to $2.248 a gallon and gasoline dropped 0.48 cent to $2.077 a gallon. Natural gas was steady at $3.530 per 1,000 cubic feet.

In London, Brent crude rose 3 cents to $83.63 a barrel on the ICE Futures exchange.

Brent oil futures continue to look strong this morning with Brent trading near the $83 mark as a weaker ICE Dollar Index helped push oil prices higher.

In London, Brent crude oil futures for December 2010 delivery was trading at $83.28 a barrel, 07.45 GMT on the ICE Futures Exchange.

ICE Dollar Index, which tracks the US dollar against a trade weighted basket of currencies including the euro, was up at 77.391 from 77.210, however the index lost over one percent in currency market trading yesterday.

Both WTI and Brent oil prices for most of 2010 have closely correlated to the value of the US dollar.

Front-month U.S. crude, from Thursday the December contract following November’s expiry a day earlier, fell 57 cents to $81.97 a barrel by 0557 GMT, after rising almost 3 percent on Wednesday. ICE Brent dropped 45 cents to $83.15.

The dollar, the yen and the euro are “roughly in alignment,” Geithner told the Wall Street Journal in an interview, suggesting there was no need for the greenback to sink further.

China’s growth receded in the third quarter and inflation edged just a touch higher, showing the economy was strong but far from overheating and suggesting that an interest rate rise this week, the first in almost three years, may be enough for now.

“The market is uncertain about how a tightening policy in China will impact on growth,” said David Taylor, an analyst at CMC Markets in Sydney. “The China growth story is crucial to the sustainability of the Asian region.”

“From an energy consumption point of view, China is the world’s largest energy consumer and there is nothing to suggest that it is pulling back from that, so it’s supportive.”

China’s economic growth in the July-September quarter was a touch stronger than expected at 9.6 percent, down from 10.3 percent in the second quarter, while consumer inflation hit a 23-month high of 3.6 percent in September, in line with market projections.

Still, for some, the numbers constituted a downside surprise after recent market chatter that growth and inflation had been much stronger, prompting the rate increase.

“We are seeing some risk aversion from the higher inflation,” Taylor said. “When you see risk aversion the dollar strengthens and that puts pressure on commodities.”

Oil swayed from gains to losses early on Thursday as the dollar strengthened from a 15-year low against the yen on speculation about the size and timing of an expected stimulus to the U.S. economy. The greenback gained more than 0.1 percent against a basket of currencies.

A report from influential consultancy Medley Global Advisors said the Fed planned to buy $500 billion of Treasuries over six months and leave itself room for more buying.

Prices Oil on Wednesday posted its biggest daily percentage gain in more than a month, after a slump of more than 4 percent on Tuesday, when China raised interest rates. Prices reached a five-month high of $84.43 on October 7.

China’s implied oil demand in September rose 6.2 percent from a year earlier to about 8.68 million barrels per day (bpd), Reuters calculations based on preliminary official figures showed on Thursday, just short of a record-high 8.9 million bpd in June.

The growth rate, which eased off the double-digit base seen during most of the first half of 2010, came on top of a strong base in September 2009, when demand rose at the fastest pace in three years.