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Oil futures push higher in European trading

By Clare Hutchison and Virginia Harrison, MarketWatch

LONDON (MarketWatch) — Crude-oil futures extended gains in electronic trading Wednesday, ahead of the release of weekly U.S. inventory data.

Crude for February delivery CL2G +0.78% added 71 cents, or 0.8%, to $101.62 a barrel in electronic trading on the New York Mercantile Exchange.
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Investors digested the latest oil market report from the International Energy Agency, which slashed 2012 oil demand forecasts.

The IEA said “the likelihood of an economic slowdown, if not outright recession, in 2012” and supply risks triggered the move. The IEA cut first quarter demand forecasts by 500,000 barrels a day and trimmed full-year demand growth expectations by 200,000 barrels a day.

Before the report was released, Commerzbank analysts said the downward revision would have little effect on prices.

“Since the [U.S. Energy Information Administration] and [Organization of the Petroleum Exporting Countries] have already slightly lowered their demand estimates, a downward revision by the IEA would no longer come as any surprise and is thus unlikely to negatively impact prices, especially given that investors are currently focusing more on the supply risks,” Commerzbank said in a note.

Among the most pressing supply issues is the current tension between the West and Iran, as worries grow over the nation’s nuclear program. The European Union will decide in the near future if it is to go ahead with a ban on Iranian crude imports, which could start in July. Tehran has responded by threatening to close the Strait of Hormuz, through which roughly one-third of world oil exports flow, according to the IEA.

The dollar also continued to weaken in mid-session trading in Europe, with the dollar index DXY -0.47% trading at 80.885, down from 81.175 late Tuesday. A decline in the greenback can encourage buying in dollar-denominated commodities such as crude.

The American Petroleum Institute is due to release its weekly oil-supply report on Wednesday, followed by the more closely watched U.S. Energy Information Administration report on Thursday. Analysts polled by Platts forecast a 2.6-million-barrel inventory build in crude stocks for the week ended Jan. 13.