Oil takes a breather under $79

Oil hovered around $79 a barrel today, up slightly after three straight days of decline as the dollar slipped against the euro and traders scoured for evidence of economic recovery to drive fuel demand.

US crude for December delivery rose 31 cents to $79 a barrel by 1337 GMT, after settling down $1.82 at $78.68 on Monday.

London Brent crude was up 31 cents at $77.57.

“Underpinning everything, the big thing is what’s happening to the dollar. Even the very short term movements. It overshadows everything,” David Morrison, market strategist at GFT Global, told Reuters.

The dollar eased against the euro and a basket of currencies today after a rally on Monday driven by speculation the Federal Reserve would signal a tightening in monetary policy down the road.

Traders are looking to the weekly American Petroleum Institute (API) crude oil report later in the session for clues on fuel demand in the world’s largest energy consumer.

US crude inventories probably rose 1.4 million barrels last week, according to a preliminary Reuters poll ahead of an American Petroleum Institute’s weekly data later on Tuesday.

Distillate stocks probably declined 900,000 barrels, while gasoline stocks were seen down 300,000 barrels, the poll showed.

Although crude prices have risen almost 77% this year, they are still about half the record of more than $147 per barrel touched last July.

Traders anticipated the market would remain nervous about prospects for growth and a series of positive corporate earnings has been based on cost-cutting rather than increased consumer demand.

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