SINGAPORE: Oil fell for a second day on Tuesday to trade below $84 as forecasts for repeated increases in US inventories rekindled concerns of oversupply, while Greek debt woes also weighed.
US crude, gasoline and distillate stockpiles probably rose for a second straight week last week, a Reuters survey showed on Monday.
Investors sought refuge in the dollar on Monday, trimming the investment appeal of commodities, as the cost of insuring Greek debt against default rose to a record high.
The greenback weakened against a basket of currencies on Tuesday, giving back gains made the previous day, while stock markets across Asia tumbled.
"A lot of the weakness has to do with Greece and the strengthening dollar, but the more concerning thing is the supply situation in the US," said Ben Westmore, a commodities analyst at National Australia Bank. "It’s a supply side phenomenon."
US crude for June delivery fell 58 cents to $83.62 a barrel by 0658 GMT, while ICE June Brent crude, down 33 cents at $86.50, was almost $3 higher, the widest premium since August last year.
Crude stockpiles at the Cushing, Oklahoma delivery point were above 34 million barrels in the week ended April 16, close to the level where they depress the value of West Texas Intermediate (WTI), the US benchmark, relative to Brent.
"The big thing that is weighing in the market is the stocks in Cushing," Westmore said. "There have been pretty big increases over the past few weeks."
Over the past month, prompt crude prices have widened their discounts to contracts for later delivery, steepening a market structure known as contango. The June WTI contract was trading about $2.50 below the July contract, bolstering the incentives to store crude.
US crude stockpiles increased by 400,000 barrels in the week to April 23, the Reuters poll showed, while distillates, including heating oil and diesel, were expected to have risen by 1.3 million barrels, and gasoline by 500,000 barrels.
The industry-funded American Petroleum Institute will release its inventory report on Tuesday at 2030 GMT, while government statistics from the US Energy Information Administration will follow on Wednesday at 1430 GMT.
Traders will look for further clues to economic recovery from the US April consumer confidence data on Tuesday, as well as the outcome of the Federal Reserve’s two-day, policy-setting meeting starting the same day.
Uncertainty over plans to curb speculation in energy markets could fuel oil price volatility this week, after the Commodity Futures Trading Commission’s public comment period ended on Monday.
Some of the biggest players in US energy markets have told the CFTC its plans to reduce speculation are misguided and will drive investors to overseas and unregulated markets.
The position limit proposal stems from a spike in oil futures prices to a record of more than $147 a barrel in 2008. Prices reached an 18-month high above $87 a barrel on April 6.
A Reuters poll on Monday showed analysts expect US crude oil to average $81.06 a barrel in 2010. They cited growing demand in emerging economies, especially China.
"Although a lot of economies have fiscal challenges ahead, in themselves the events in Greece won’t have a big impact on global demand," Westmore said.