Light oil price trading over $79, looking higher for 2010

US Light oil prices are trading over $79 a barrel on Wednesday and are looking higher for 2010 despite a surprise rise in weekly US crude oil inventories ahead of the release of US government data.

Benchmark Light, sweet crude oil futures for February delivery was up 19 cents to $79.06 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract added 10 cents to settle at $78.87 on Tuesday.

Oil has gained for six straight days but briefly traded lower early Wednesday after the American Petroleum Institute reported an increase of 1.725 million barrels in U.S. inventories last week, said Clarence Chu, a trader with Hudson Capital Energy in Singapore.

The rise contradicted market expectations of a drop of 2 million barrels and all eyes are now on the EIA weekly data due to be released later Wednesday, he said. The more comprehensive EIA data last week showed crude stocks were down 4.9 million barrels.

“Oil prices are still holding. If the EIA numbers again show a reduction in stockpiles, prices will move up but there will be strong resistance at $80 a barrel,” Chu said. On the other hand, oil prices will slide if the EIA data show a build up in inventories, he said.

“In the first quarter of 2010, more buying is anticipated by consumers and institutional funds increasing their allocation to commodities,” predicts Investec in a research note.

UBS Wealth Management agrees: “As to broad trends, we think the market should continue to favor commodities with an industrial demand backdrop and structural supply bottlenecks, as well as those with highly concentrated sources of supply,” it says in a note.

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