Oil surges to $79 a barrel on dollar volatility

Oil inched toward $79 a barrel on Wednesday, giving up some of the previous day's 1.1 per cent gain on weaker Asian equities and a steady dollar but with the industry data showing a surprise large drawdown in US inventories losses remained limited.

Crude for December delivery dropped 12 cents to $79.43 a barrel at one point after settling up 87 cents on Tuesday, rising for the first time in four days. London Brent crude was also down 17cents at $77.75.

The Japanese Nikkei share average settled to a two-week closing low on Wednesday even as the dollar held gains against a basket of currencies. With the dollar strengthening, crude becomes more expensive for foreign currency holders.

According to the American Petroleum Institute data US crude stocks fell by 3.5 million barrels last week compared with analysts' forecast of 1.8 million barrels.
However, according to data the fall in US gasoline and distillate supplies was less than expected.

The API report is regarded as the precursor to the US Energy Information Administration's more authoritative numbers to be issued on Wednesday.
The crude oil price is up 78 per cent this year but still remains 46 per cent below the $147 a barrel peak of July last year.

Oil prices were below $70 a barrel on 7 October rising to a one-year high of $82 last Wednesday coinciding with higher global stock indices and a weaker dollar.
OPEC oil ministers have meanwhile said this week that they may raise output to make up crude stocks if they fall fast.