* Firmer dollar limits oil's climb
* Further draws seen in U.S. crude stock support oil
* Cold weather in U.S. should kick up heating demand
By Judy Hua
SINGAPORE, Dec 29 (Reuters) - Oil eased towards $78 on
Tuesday, after hitting a five-week high a day earlier, as the
firm dollar overshadowed bullish expectations of a further
drawdown in U.S. crude inventories and the colder weather.
The U.S. currency held its strength against the yen and the
euro, as investors looked ahead to the dollar's direction in
the new year after a rally this month. []
U.S. crude for February delivery <CLc1> fell 28 cents to
$78.49 a barrel by 0332 GMT in thin pre-holiday trade.
It settled up 72 cents on Monday, after touching $79.12,
the highest since Nov. 23. Heating oil futures led gains in the
oil complex as forecasters called for colder weather in the
United States, the world's largest energy consumer.
London Brent crude for February <LCOc1> shed 22 cents to
$77.10.
"People are expecting a drop in the U.S. inventory that has
sustained oil prices at the moment and liquidity is quite low,"
said Serene Lim, Energy and Commodity Strategist at ANZ Bank.
U.S. crude inventories fell last week as refiners drew down
inventories for year-end tax issues and imports declined, a
preliminary Reuters poll of analysts showed.
Ahead of weekly inventory data from industry group American
Petroleum Institute and the U.S. government Energy Information
Administration (EIA), seven analysts forecast crude
inventories
fell an average of 1.5 million barrels in the week to Dec. 25.
If the prediction holds, it will be the fourth-straight
week of declines. Last week, EIA data showed crude stocks fell
a hefty 4.9 million barrels. []
SEVERE WINTER BITES
Distillate stocks, which include heating oil and diesel,
were expected to drop 1.9 million barrels as colder
temperatures swept the nation.
U.S. natural gas futures ended with strong gains on Monday,
after rallying late to a near one-year high due to the harsh
U.S. winter this week that should boost heating demand despite
typically slow industrial and commercial loads during a
holiday-shortened week. []
Temperatures in the U.S. Northeast -- the world's largest
heating oil market -- were expected to average above normal on
Monday before dipping to below normal through Friday, private
forecaster DTN Meteorlogix said. []
Oil's rally of more than 12 percent over two weeks were
limited on Tuesday by the dollar, which has risen broadly in
recent weeks on optimism the U.S. economy may be on track for
improved growth in 2010.
The dollar index versus a currency basket <.DXY> hovered
under this week's three-month high, as trading activity wound
down before Christmas. Gold also rose while Asian stocks
rallied.
Oil has often eased this year when the dollar firms, making
crude more costly for holders of other currencies.
A week after the latest OPEC meeting, the United Arab
Emirates, among the most compliant to OPEC quota limits, said
it will supply less of its three main lighter crude grades to
Asia for February, but will ship more of the heavy Upper Zakum
grade. []
Traders expected the political upheavel in Iran to have
little impact on oil prices, after at least 10 leading
opposition figures were arrested on Monday, a day after eight
people were killed in anti-government protests.
[]
(Editing by Ramthan Hussain)
