Oil rose above $77 a barrel today, after a rebound of 1.6 per cent in the previous session, as Dubai debt default fears eased and cautious investors cast about for fresh clues to the pace of global economic recovery.
With a series of key economic indicators due out in the United States later in the day, as well as a preliminary snapshot of the weekly US fuel inventory report, traders are expected to stay on the sidelines until they get a clearer picture on the state of energy demand.
US crude for January delivery inched up 4 cents to $77.32 a barrel by 0322 GMT. The contract settled up $1.29 at $78.47 yesterday.
London Brent crude crept up 7 cents to $78.54.
Crude oil prices, which rose for four straight months and squeezed out a gain of 0.5 per cent in November, have oscillated in a narrow band of $70 to $82 over the past two months against a backdrop of mixed economic data.
Analysts expect prices to be rangebound in the short term.
"We see little impetus for a break to the upside, even if economic indicators surprise to the upside this week," Credit Suisse analysts said in a research note to clients.
"The inventory overhang in the diesel and heating oil markets should prevent prices from breaking higher for the time being."
Key data due for release later today include US weekly retail sales, factory activity for November, pending home sales and construction spending for October.
Investors will watch for the weekly report of the American Petroleum Institute to see if fuel demand in the world's largest energy consumer shows signs of sustained recovery, and dollar movements will also set direction, analysts said.
US crude oil stockpiles likely were little changed last week as higher imports offset gains in refinery utilisation, a preliminary Reuters poll of analysts showed.
Distillate stocks were seen down 400,000 barrels, while gasoline stocks were expected to rise by 900,000 barrels, the poll showed.
The dollar slipped against major currencies today as investors took the view that Dubai debt woes would probably be contained, reducing safety bids for the greenback.
Implied volatility on US crude futures, a measure of risk perception based on options, fell 2.5 per cent yesterday, after posting a jump of 15 per cent, its steepest since October 2008, on Friday.
Oil's gains yesterday were supported by Iran's announcement that it planned to build 10 uranium enrichment plants and on news that Tehran had restructured its naval forces for operations in the Persian Gulf in the event of a conflict.
Easing concerns about Dubai's debt problems and an upbeat US regional business activity report also boosted investors' risk appetite and drew more funds into energy and commodities.
Reuters