Oil Settles Near $79 as Dollar Drifts Lower

Oil prices rose more than 3 percent on Monday, taking back all of last week's 1.4 percent losses as the dollar drifted lower and better-than-expected U.S. consumer spending data boosted markets.

US light, sweet crude for December delivery rose $2.55, or 3.3 percent, to settle at $78.90 a barrel, climbing as October U.S. retail sales data showed a 1.4 percent surge on the back of strong motor vehicle purchases.

London Brent crude also gained.

"The trading range is between $74.50 and $78.50, and we're just bouncing up and down between there today. It's actually quite a quiet session," said broker Christopher Bellew at Bache Financial.

The U.S. dollar slipped on Monday against a basket of currencies as it heads into a week likely to see increased debate over "market-oriented exchange rates" during U.S. President Barack Obama's visit to China.

"Definitely China will be moving the market more than anything else," said Commerzbank commodity analyst Eugen Weinberg. "The market is being driven by sentiment, not by the fundamentals of supply and demand."

A weaker dollar typically supports commodities because dollar-priced contracts become cheaper for buyers using other currencies.

Underlining views that global economic imbalances are reflected by the weakening dollar, the head of the International Monetary Fund said a stronger Chinese yuan was part of the reforms Beijing needed to implement to increase domestic consumption.

Market Oversupplied

Markets barely responded to comments by OPEC's president, Jose Botelho de Vasconcelos, that the market was still oversupplied and he was satisfied with current oil prices and compliance, which he put at about 65 percent.

Hopes of a revival in energy demand from Japan following positive economic data supported prices, but analysts at JP Morgan said "one by one the supply-side arguments both short and longer term are being scratched off the list of reasons for oil prices to go higher."

"The argument for the bull side of the oil market...is increasingly centered around the surge in global liquidity as the economy takes off," JP Morgan's Kristi Jones wrote in their Global Energy Strategy newsletter.

With most corporate results already reported, market watchers will seek the next catalyst to set direction for the dollar, stocks and commodities.

That puts this week's round of economic data in the spotlight, including U.S. retail sales, inflation and housing starts data.

Analysts said the potential for oil price gains could be limited, however, with U.S. data pointing to a choppy recovery, while bulging fuel inventories also reflected sluggish energy demand.

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