OREANDA-NEWS. October 26, 2010. WTI crude for December delivery advanced 83 cents to USD 82.52/bbl pm Monday, while Brent rose 58 cents to USD 83.54/bbl.

Oil prices edged up in choppy trading yesterday, as the dollar was pushed lower by disappointing results from the G-20 meeting. The dollar then pared losses vs. the euro after better-than-expected US September existing home sales data, with the dollar index DXY bouncing off its low. Oil found support as the dollar slumped to a 15-year low against the yen and traded above USD 1.40 against the euro, as the G-20 agreement to shun competitive currency devaluations was read by investors as a signal to resume selling the dollar. Since no major agreement emerged from the G-20 meeting about trade imbalances at its weekend meeting, the market has returned to the status quo, i.e. with quantitative easing expected from the Fed.

US equities got a boost from the weaker dollar and expectations of economic stimulus from the Federal Reserve prompted investors to buy riskier assets. The Fed's policy meeting in early November is expected to take up the question of another round of quantitative easing.

Oil also received support from ongoing strikes in France over pension and port reforms, which have reduced fuel supplies, shut refineries and disrupted shipping. Workers at seven out of France's 12 refineries voted to continue striking on Monday. But, as we assumed earler, workers voted to end their strike at three of the country’s refineries as the contested pension bill neared parliamentary approval and the government warned that fuel shortages are damaging the economy.

Market watchers continued to monitor the potential for weather disruption to Gulf of Mexico output. However, Hurricane Richard was downgraded to a tropical storm and then into a tropical depression over Mexico as it headed into the GoM. Mexico’s state-owned oil company Pemex said the system would not affect the country's offshore production.
Moving forward, we think the market is in for a correction at the current levels ahead of this week’s inventory reports, which will probably show that US gasoline stockpiles increased by about 500,000 bbl last week, while distillates likely rose on higher exports to Europe ahead of the winter heating season. We think the French strikes had more of a psychological effect than an actual impact on physical volumes of petroleum inventories. In the upshot, we expect WTI and Brent to pull back by USD 1-2 unless some surprise drawdowns are in the offing.