Oil Reverses as Dollar Weakens, Offsetting Demand Fears
Crude oil prices rose on Monday, reversing early losses to trade higher by late morning in New York as the dollar weakened, but ample supplies of crude oil were expected to limit gains.
"The dollar's move has been pretty strong lately, maybe you're seeing a little more profit taking," said Gene McGillian, an analyst with Tradition Energy in Stamford, Connecticut.
The U.S. dollar fell against a basket of six currencies , making crude oil and other dollar-denominated commodities cheaper for holders of foreign currencies.
"It looks like the bulls are trying to start the rally up again. I would think the market meets greater resistance because we have weak underlying fundamentals," McGillian said.
The closer the market pushes to the 2013 U.S. crude oil high of $98 per barrel, the more resistance it faces, he added.
The International Energy Agency expects weaker demand growth for oil in 2013, along with higher supply.
Gold fell for an eighth session to its weakest in over a month as fears the U.S. Federal Reserve may wind back its economic stimulus program hurt its appeal as a hedge against inflation. Gold is down 20 percent so far this year.
Short-term "the market looks fairly balanced, with Brent trading in a range between $90 and $110 per barrel. It is difficult to see it breaking out of that for a while," said Olivier Jakob, analysts at Swiss energy consultancy Petromatrix.
Several countries celebrated religious festivals on Monday, keeping market volumes low in Europe.
Traders awaited the minutes of a U.S. Federal Reserve meeting due to be released on Wednesday to assess the outlook for the oil markets, as any hints of continued monetary easing by the U.S. central bank would be bullish.
Analysts at U.S. brokerage Jefferies Bache said they had turned more negative on oil markets and saw the chance of at least $10 more of falls in crude prices from current levels:
"We can see a renewed disconnect from the strong equities, especially if the dollar index continues to march higher," they wrote in a note to clients. "We look for underlying petroleum fundamentals to deteriorate further."
"We have shifted to a bearish stance with particular emphasis on the crude markets," they added. "Ultimate downside price possibilities in the crudes still exist about $10-$11 below current levels."
But David Hufton, managing director of brokers PVM Oil Associates in London, said Brent may stay above $100 a barrel.
"As long as U.S. investors remain bullish and 'risk on' there has to be a good chance that Brent will get through the second quarter without dipping below $100."
Oil markets found some support from tension in the Middle East, which raised worries over the security of supply from the biggest producing region.
Lebanese Hezbollah militants attacked a Syrian rebel-held town alongside Syrian troops on Sunday, and Israel threatened more attacks on Syria to rein the militia in.