Oil Bulls Bank on Fed to Fuel Rally: Survey

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Benchmark oil prices are likely to extend gains this week on expectations that the U.S. Federal Reserve will restate its commitment to its asset purchase program and maintain its ultra-low rates policy at a two-day meeting starting on Tuesday, according to CNBC's weekly oil market sentiment survey

Nine out of 15 respondents, or 60 percent, forecast prices will rise, building on last week's 1.6 percent gain in U.S. crude futures. April delivery crude rose 42 cents to settle at $93.45 a barrel on Friday, the highest settlement since Feb. 20. Brent crude for May delivery gained 86 cents, or 0.8 percent, to close at $109.82 a barrel on the London-based ICE Futures Europe exchange on Friday.

However, bullish respondents appeared to be cautious and some said any rally in U.S. crude may not surpass the mid-ninety dollar a barrel mark and a not insignificant minority of survey respondents - six, or 40 percent - said prices would fall this week.

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"I'm looking for WTI (West Texas Intermediate) to rise to the $95 area before moving lower," said Tom Weber, senior commodity adviser at Portfolio Managers, Inc. Commodity Futures & Options in Los Angeles.

"The global macro picture does not argue for a strong recovery. While positive anecdotes will appear, they will be too micro and too few."

The U.S. dollar will continue to exert a tight inverse correlation on commodity markets, including oil, traders said.

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"The dollar should continue to be driven higher" by softness in the Japanese yen and the euro, Weber said.

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The euro tumbled to its lowest level for 2013 against the dollar on Monday after a plan to tax bank deposits as part of an EU bailout deal for Cyprus sparked fears that the same may happen in the eurozone's larger troubled economies such as Spain and Italy should they need financial assistance.

The euro fell to as low as $1.2880 on Monday, its weakest level since Dec. 10, before paring losses to trade at$1.2953 early Tuesday in Asia.

"Brent has fallen to $108.30 per barrel at the start of the new week of trading and is thus trading only just above a three-month low," wrote Eugen Weinberg, Head of Commodity Research at Commerzbank in a report on Monday.

"The reason for this is increased risk aversion in the wake of the controversial bailout package for Cyprus at the weekend. In the short term the pressure is likely to continue as further financial investors are expected to withdraw from the market."

Despite the renewed headwinds from Europe, Portfolio Managers' Weber said U.S. equities should continue to rise from the 'Bernanke Put,' although volumes were expected to be low.

The dollar index, which tracks the greenback versus a basket of currencies, fell 0.5 percent to 82.219 on Friday as investors opted to book profits after U.S. inflation data kept the door open for the Federal Reserve to continue its bond-buying program for the foreseeable future, Reuters reported. It had risen to 83.166 on Thursday, the highest since early August, buoyed by positive data on U.S. employment and consumer spending released over the past week

Oil's "recent weakness has largely been a function of the stronger dollar in general and as such, price action in euro/dollar will very important going forward especially as the euro approaches its 200-day moving average" of $1.2869, said Dhiren Sarin, Barclays' Chief Technical Analyst for Asia-Pacific.

"We are ultimately looking for Brent crude to test $104.75, the lows from November 2012," Sarin added. "However, near term, the decline is likely to become more erratic and would prefer selling bounces while beneath $110.75 rather than chasing weakness."