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Oil reverses, ends higher on weak dollar

Cenovus oil, oil sands, oil pipeline
Justin Solomon | CNBC

Crude oil futures reversed course on Monday after a massive sell-off last week and ended higher on a slump in the U.S. dollar.

The dollar pushed into negative territory on track for its biggest one-day drop since January, after climbing to a more than four-year peak on Friday. An increase in the index makes oil most costly for buyers using other currencies.

Crude's price rise came as talk of an extended outage at the 300,000-barrel per day Irving, St. John refinery in Canada, pushed front-month New York gasoline prices 1.5 percent higher.

"There seemed to be a little nervous buying in the products, which led to short covering and turned us around (in crude)," said Phil Flynn, an analyst at Price Futures Group in Chicago.

"It was the perfect connection where the market was a bit oversold, and St. John gave us a reason to buy."

Brent for November ended 48 cents higher at $92.79 a barrel, after hitting a low of $91.25 a barrel intraday. The benchmark had hit $91.48 a barrel on Friday, its lowest since June 2012.

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U.S. November crude settled 60 cents higher at $90.34 a barrel, and New York gasoline was up 1.5 percent.

Despite the uptick, analysts said that oversupplied markets coupled with lackluster demand continued to weigh on the crude markets.

"Supply continues to weigh heavy on the market and demand isn't keeping up with it," said Oliver Sloup, director of managed futures at iitrader.com in Chicago. "At some point, producers will have to taper down production and right now, there's no reason to pick a bottom."

Tony Machacek, an oil trader at Jefferies in London, said that many traders were buying options to insure against prices falling to $80, reflecting uncertainty in the markets.

The overall trend for demand has been weak this year.

London-based consultancy Energy Aspects forecasts demand growth for 2014 at around 1 million barrels per day below supply growth, oil analyst Virendra Chauhan told the Reuters Global Oil Forum.

OPEC outlook

Libyan output has increased rapidly since the summer, while conflict in northern Iraq has failed to dent supply. Islamic State militants have so far failed to make an impression in the country's southern oil-producing provinces.

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The Organization of the Petroleum Exporting Countries (OPEC) has not given any formal indication that it will cut supply at or before its Nov. 27 meeting.

Many analysts expect OPEC to cut production if the oil price approaches $90.

"The market is discounting any supply disruptions that we've seen in Libya and Nigeria. I think we could have continued weakness in the market as the longs continue to bail on their positions,'' said Andrew Lipow, president of Lipow Oil Associates in Houston, Texas.