Oil Down as U.S. Stocks Build

U.S. crude inventory may have marked new high last week, but Saudi Arabia says Asian demand is strong and will increase.

Brent crude futures slipped on Tuesday ahead of weekly U.S. crude inventory data that is expected to hit another high, but a weaker dollar helped to put a floor under prices.

U.S. commercial crude stockpiles were expected to have risen last week for the 16th straight week, up from a record 489 million barrels, even though drilling activity fell, a preliminary survey by Reuters showed on Monday.

"Crude oil has made a strong price recovery on the expectation that you would start to see lower U.S. production and also some stock draws," said Olivier Jakob of Swiss-based consultancy Petromatrix.

"We need to have some confirmation of that in the statistics before we can rally further."

Brent June crude futures had slipped 8 cents to $64.75 a barrel by 1058 GMT, after touching a low of $63.90 earlier in the session. U.S. June crude fell 26 cents to $56.73 a barrel, recovering from an intra-day low of $56.91.

The dollar was down 0.4 percent against a basket of currencies, helping to curb Brent's losses. A weaker greenback makes dollar-priced commodities more attractive for holders of other currencies.

Brent crude hit a 4-1/2 month high of $65.80 a barrel last week, while West Texas Intermediate (WTI) has risen for six consecutive weeks, underpinned by net long positions on both contracts as speculators bet on a decline in U.S. shale output.

Saudi Arabian Oil Minister Ali al-Naimi said in a speech on Tuesday that he expected Asian oil demand to grow and that Saudi, the world's top oil exporter, would be ready to meet that demand.

"Asian demand for oil remains strong and we are ready to supply whatever is required. As the Asian population grows, and as the middle class expands, so the demand for energy will increase," Naimi said in a speech in Beijing.

Conflict in Yemen and Syria and unplanned production outages in the North Sea and Brazil have prompted Barclays (BCS) to raise its forecast for average 2015 prices - for Brent by $9 to $60 a barrel and for WTI by $8 to $54 a barrel.

Still, it warned in a research note that "the oil market is not out of the woods yet and weak fundamentals will weigh on prevailing bullish market sentiment in the second quarter".

Bets on rising Brent crude prices rose for a fifth straight week to a new record, InterContinental Exchange data showed on Monday.
 

By Himanshu Ojha