Brent oil prices open trading under $78 a barrel on Thursday amid a weaker US dollar which is now back under the 80 marker on the ICE Dollar Index.
In London, Brent crude oil futures for November 2010 delivery was trading at $77.79, 07.45 GMT on the ICE Futures Exchange after loosing some ground in trading yesterday.
Meanwhile, the US Dollar Index, which tracks the US dollar against a trade weighted basket of six major currencies, was at around 79.78, testing levels below 80 for the first time since April 2010.
The US dollar dropped for a second day yesterday following the latest US Federal Reserve announcement on the possibility of further money printing and its implicit concern about deflation.
Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore, said oil prices should normally be trading higher because of a weaker US dollar which makes the dollar priced commodity cheaper to holders of other currencies. But an unexpected rise in US crude inventories, which reflects soft energy demand in the world’s biggest economy, has put a dampener on oil prices.
“I think that the concerns about the economic recovery in the US will put WTI oil futures no higher than the mid-$70′s in the short term. With US unemployment still at 9 to 10 per cent in the US, consumer confidence and sentiment will be weak. It will be difficult to sustain oil at above $75 under this environment.” Shum said.
Brent oil futures are still trading well over a $3 premium to it’s US counterpart WTI oil on the NYMEX, which closed yesterday’s session at $74.70.