Oil rose more than 2 percent on Tuesday as the dollar weakened on expectations the US Federal Reserve will keep interest rates near zero for a prolonged period, and as Opec ministers pledged to keep oil output cuts in place at a meeting Wednesday.
The dollar tumbled 0.6 percent against a basket of currencies after European finance ministers agreed to technical terms to provide debt-stricken Greece with aid, and as investors expected a Fed policy statement due around 2:15 pm EDT (1815 GMT) on Tuesday to renew a pledge to maintain ultra-low rates into the future.
Opec is likely to hold production targets in place when its ministers meet tomorrow in Vienna. Saudi oil minister Ali al-Naimi said Tuesday Opec may not need to adjust targets this year, after it scaled back output by 4.2 million barrels a day in late 2008 to prop up falling oil prices.
"We have been sailing very well and will continue to sail very well," Naimi told reporters in Vienna. He had told reporters on Monday that Opec saw no need to adjust supplies. A flagging dollar makes oil cheaper for holders of other currencies. Algeria's oil minister told reporters on Tuesday that he expected oil prices to rise to as much as $85 a barrel later in 2010.
US crude prices for April rose $1.84 to $81.64 a barrel by 1:32 EDT (1732 GMT). ICE Brent futures rose $1.41 to $79.30 a barrel. The Federal Open Market Committee is expected to hold benchmark US rates near zero and pledge to keep them "exceptionally low" for an "extended period" in a statement later on Tuesday. A low-rate environment can often spur investment flows into oil and other commodities as investors seek richer returns.
Oil prices had slid nearly 2 percent on Monday, falling below $80 a barrel for the first time since March 4 on fears that a 16-month high in consumer inflation in China might lead to further Chinese monetary tightening as early as this week. China has already tightened bank reserve requirements twice this year, with each move hitting commodity markets worried about demand growth.
A report from the American Petroleum Institute due at 4:30 pm EDT (2030 GMT) on Tuesday will provide an update on US inventories and is expected to show that crude stocks rose for the seventh straight time last week. The average forecast showed a 900,000-barrel increase in crude supplies, according to a preliminary Reuters poll of analysts. The threat of future attacks on the oil industry in Nigeria may be supporting oil after militants detonated two car bombs outside a government building on Monday.
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