Oil steadied near $79 on Tuesday as forecasts see falling crude inventories and rising refined product stocks in the United States, continuing a trend that has helped keep prices in a $10 range for almost two months.
U.S. crude inventories probably fell 1.8 million barrels last week, a Reuters survey showed, while supplies of distillate fuel including diesel may have climbed for the ninth consecutive week and gasoline for the fifth, even as summer demand peaks.
Over the past seven weeks oil has traded between $70 and $80 a barrel, as investors trimmed long positions whenever prices approached the upper end of that range, while they increased bets for higher prices as it fell toward the bottom, said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd.
U.S. crude touched $79.60 on Friday, the highest price since early May, and has hovered around $79 for the past two days. On Tuesday, the September contract added 1 cent to $78.99 a barrel at 1:19 a.m. ET, while ICE Brent shed 1 cent to $77.49.
Under current market conditions, people are thinking that oil would be overvalued at $80, Emori said. Evidence of much stronger demand would be quite a positive indicator for the crude market. Once oil hits $80, it can go up to $85 very quickly on short-covering.
Industry group the American Petroleum Institute will publish data on U.S. inventories at 2030 GMT on Tuesday, followed by government statistics from the Energy Information Administration on Wednesday at 10:30 a.m. ET.
U.S. HOUSING, GULF OF MEXICO
On Monday, oil ended unchanged as stronger U.S. home sales led to economic optimism, while some oil output was restored in the Gulf of Mexico after Tropical Storm Bonnie fizzled out.
The positive economic data helped lift equities. Asian stocks rose to their highest in two and a half months on Tuesday, while the euro inched up toward two-month peaks on relief over stress tests on European banks.
As much as 826,000 barrels a day of U.S. production was shut in by Saturday, according to government estimates. By Monday, companies had restored about half of the idled output and operations were returning to normal.
Taiwan's Formosa Petrochemicals (6505.TW) said on Tuesday it expects part of its refinery complex to restart production within a week after a massive blaze closed the operation a day ago.
BP Plc (BP.L)(BP.N) is expected to install an American known for diplomacy as chief executive, replacing Tony Hayward who has come under fire for his gaffe-prone handling of the worst oil spill in U.S. history.
Bob Dudley, the U.S. executive managing BP's response to the spill in the Gulf of Mexico, is poised to get the top job, a move that could soften U.S. criticism of the British oil major, sources close to the company said.