Brent climbs above $122 on weak dollar

By @ibtimes on

Brent crude rose above $122 a barrel on Wednesday, helped by a weaker dollar and a rebound in equities.

ICE Brent crude was 87 cents firmer at $122.20 a barrel by 1348 GMT, albeit lower after briefly climbing to intra-day highs of $123.15.

U.S. crude was up $1.08 at $109.36 a barrel, but off highs of $109.92 a barrel earlier in the session.

The big driver at the moment is the weakness of the dollar, GFT market strategist David Morrison said. We are talking a dollar weakness story lifting everything, and crude in particular.

The dollar index <.DXY>, which measures the greenback against a basket of currencies, was down 0.89 percent by 1228 GMT. A weaker greenback can support dollar-denominated commodities by rendering them less expensive for other currency holders.

The dollar index has broken significantly below a long-term multi-year trendline, so we could see the selling accelerate. It's a shorthand for commodity traders to look at the dollar index, which gives some support to commodities going forward, Morrison added.

Spot gold prices breached $1,500 for the first time ever, and silver hit a 31-year high on Wednesday.

European shares <.EU> rallied on upbeat earnings from companies including Intel and on the back of well covered euro bond auctions from Portugal, Spain and Germany boosting and lending support to commodities.

There are external factors -- the strong equities and weaker dollar -- which are not oil-related but answer for today's gains, Commerzbank analyst Carsten Fritsch said.

The International Energy Agency's executive director, Nobuo Tanaka, issued the latest in a series of warnings on the effect of strong oil prices on demand in top consumers the United States and China.

Producer group OPEC needs to boost output in June or July to douse further price rises, Tanaka said, adding that if crude prices stayed at $100 a barrel or more for the rest of 2011, the market could see demand destruction similar to that of 2008.

U.S. OIL DATA

OPEC has to date declined to make a coordinated increase in supply, despite growing concerns about demand destruction as world oil prices rocketed up to 2-1/2-year highs of $127 a barrel earlier this month amid unrest in the Middle East and North Africa.

We don't have much fundamental news, but Saudi Arabia recently cut output in the last few weeks, which was not expected, and all in all prices could go up a bit, LBBW analyst Frank Schallenberger said.

Ahead of the Easter holiday, oil prices are likely to remain in a range in reduced trading, according to Commerzbank's Fritsch.

I think prices will remain in a narrow range between $120-$123 a barrel and no breakout is expected ahead of the Easter weekend, Fritsch said.

Data from the American Petroleum Institute on Tuesday showed U.S. gasoline stocks fell 1.8 million barrels and distillate stocks dropped 3.4 million barrels last week in an unexpected decline, which helped ease fears over eroding demand.

The API numbers were rather bullish and set a good platform for the oil data out of the U.S. tonight to boost prices, said Serene Lim, analyst at ANZ Bank in Singapore.

Ahead of the U.S. Energy Information Administration's weekly data due at 1430 GMT, a Reuters poll shows crude oil inventories are expected to have increased for the seventh straight time last week as crude imports rose faster than refinery demand.

(Additional reporting by Francis Kan in Singapore; editing by Jane Baird)

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