Oil prices stayed flat at above $70 a barrel today, as investors waited for more definitive signs of demand recovery and weighed the impact of a report that Gulf Arab states were in secret talks to replace the US dollar with a basket of currencies in oil trading.
Oil prices rose slightly yesterday after data showing the US services sector expanded for the first time since August 2008 rekindled optimism that an economic recovery is gaining traction.
US crude for November delivery slipped 4 cents to $70.37 a barrel, after gaining 46 cents to settle at $70.41 on Monday. London Brent inched lower by 4 cents to $68.00.
Traders have been looking to macroeconomic data and equities markets for signs of a potential end of the recession that could boost consumption and draw down high oil inventories.
US crude and product inventories likely rose last week, according to a preliminary Reuters poll of analysts. The American Petroleum Institute will release its inventory report later today, while the US Energy Information Administration (EIA) will issue its own supply data on Wednesday.
The dollar fell against against the euro and the yen today after Britain's Independent newspaper reported that Arab states were in talks to end the use of the dollar for oil trading.
Quoting unnamed sources, including Gulf Arab and Chinese banking sources, it said Gulf Arab states were in secret talks with Russia, China, Japan and France "to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf".
Analysts said ending the use of the dollar as the currency used to settle oil trades between countries would be an easy task, but a move to replace the currency in which oil is priced would require a massive effort.
Investors will keep a close watch on the US weekly retail sales data, the EIA energy outlook for October and the US API weekly crude stocks report to uncover more clues on the pace of recovery in the world's largest energy consumer.
Oil gained nearly 6 per cent last week, largely bolstered by a US government report mid-week showing a surprise drop in gasoline inventories as well as tensions between key oil exporter Iran and the West over Tehran's nuclear programme.
But some analysts said that crude prices, which have been trading in the $65-$75 range seen over the past two months, are unlikely to break beyond the $75 mark until energy demand worldwide starts to show more convincing signs of a rebound.
Reuters