Oil prices hesitate on stronger dollar, economy

AP News
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Posted: Oct 26, 2010 4:33 PM
Oil prices hesitate on stronger dollar, economy

Oil prices moved between small losses and small gains on Tuesday, as the dollar got a little stronger and stocks wavered after disappointing earnings reports and lower home prices. Benchmark crude for December delivery rose 3 cents to settle at $82.55 a barrel on the New York Mercantile Exchange.

Gas pump prices drifted lower, with the national average for a gallon of regular at $2.81, according to AAA, Wright Express and Oil Price Information Service. That's almost two cents lower than a week ago and 14 cents higher than a year ago.

The SpendingPulse gasoline demand report for last week showed drivers continued to shy away from the pump. Retail gas consumption was down 1.7 percent from the previous week and 2.7 percent from the same week a year ago.

The dollar made slight gains against the euro, making crude priced in dollars more expensive for investors holding other currencies.

"It seems that the U.S. dollar continues to be strongly correlated with the oil market, as the recent U.S. dollar weakness has helped oil prices to remain fairly strong above $80 per barrel area, amid these fragile economic conditions," said analysts at Sucden Financial in London.

Stock markets were little changed at the end of the day. The Dow Jones Industrial Average finished about five points higher. The NASDAQ and the S&P 500 were a bit higher as well. A surprise loss at U.S. Steel for the third quarter and concern about weak demand for steel used in cars, appliances and housing drove down steelmaker shares. U.S. Steel, Arcelor Mittal and AK Steel all closed lower.

The housing market remains anemic in most parts of the country. Home prices fell in 15 of 20 cities measured in the Standard & Poor's/Case-Shiller index for August. Consumer confidence in the economy improved a bit this month from September, but remained weak.

The Energy Department releases its weekly reading on petroleum inventories on Wednesday. In a note to investors, energy consultants MF Global said an expected rise in stockpile levels because of slowing fuel demand is putting downward pressure on prices.

Analysts think crude inventories grew by 1.5 million barrels last week, according to a survey by Platts, the energy information arm of McGraw-Hill Cos. Gasoline and distillate stocks--diesel and heating oil--are also expected to rise.

"While the numbers could bring some surprises this week, one week's report will not change a continued bearish supply-usage situation as large supply surpluses will remain intact," energy consultants Ritterbusch and Associates said in a report.

Crude will likely hover above $80 at least until the Federal Reserve says what measures it will take to spur U.S. economic growth at its meeting on Nov. 2 and 3.

"Energy futures could continue to chop sideways through the rest of this week as both the bulls and the bears are apt to exercise caution ahead of next week's Fed meeting," Ritterbusch said.

In other Nymex trading in November contracts, heating oil was off 0.5 cent to settle at $2.2500 a gallon and gasoline gained 1.67 cents to settle at $2.0940 a gallon. Natural gas gained 3.7 cents to settle at $3.395 per 1,000 cubic feet.

In London, Brent crude rose 12 cents to settle at $83.66 a barrel on the ICE Futures exchange.

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Associated Press writers Pablo Gorondi in Budapest, Hungary, and Alex Kennedy in Singapore contributed to this report.