11 February 2014, News Wires – Brent crude edged toward $109 a barrel on Tuesday on cautious optimism that the Federal Reserve’s new head will signal the central bank’s commodity-friendly monetary policy is to remain for now.
With all eyes on Janet Yellen in her first testimony to Congress, many investors expect her to indicate slower stimulus tapering following recent mixed data in the world’s biggest economy.
“If Yellen, as expected, gives a dovish testimony, it will give some assurance to oil markets,” said Chee Tat Tan, investment analyst at Phillip Futures in Singapore.
“The greenback would be likely to weaken further, which would help lift demand for crude oil.”
Brent crude for March delivery was up 8 cents at $108.71 per barrel early on Tuesday, after settling 94 cents lower. The contract, which expires on Thursday, traded as high as $109.75 on Monday, its highest since 2 January.
US crude traded 6 cent higher at $100.12 a barrel. The contract closed above the $100-mark on Monday for the first time this year.
The Fed has begun cutting its bond purchases by $10 billion a month as the US economy showed signs of strength. The move marks perhaps its most difficult policy shift after five years of easy money that has provided support for risky assets such as commodities.
The dollar wallowed near a two-week low against a basket of major currencies early on Tuesday.
US oil hovered around a six-week high, supported by an expected drop in distillate inventories last week, in part due to continuing freezing weather across the country.
A survey of five analysts, taken ahead of weekly inventory reports from the American Petroleum Institute (API) and the US Energy Information Administration (EIA), forecast distillate stocks, including heating oil and diesel fuel, fell 2.3 million barrels in the week to 7 February.
However, the possibility of milder weather next week curbed demand for heating oil in recent days and raised the prospect of an end to a long winter, even as another snowstorm is expected in the US north-east this week.
“Prices can hold up for now, but when temperatures return to normal, oil may lose support and US crude will again trade on its fundamentals,” said Tan.
US crude inventories were expected to have risen by 3 million barrels last week to more than 361 million barrels, the preliminary poll of analysts showed.
The API will release its data later on Tuesday, while the EIA will publish its data the following day.
Crude inventories could continue to rise as US oil production from shale plays is expected to accelerate in February and March, the EIA said.
Shale oil production will rise by 63,000 barrels per day in February and another 64,000 bpd in March, according to forecasts from the EIA issued on Monday.
That compares to a 53,000 bpd increase in January and a 49,000 bpd rise in December, months that typically experience slower activity due to winter weather conditions.