* Gulf in talks on replacing dollar for oil-report
* Dollar falls against euro, yen
* Market eyes preliminary U.S. crude inventory report
By Fayen Wong
PERTH, Oct 6 (Reuters) - Oil prices stayed flat at above
$70 a barrel on Tuesday, as investors waited for more
definitive signs of demand recovery and weighed the impact of a
report that Gulf Arab states were in secret talks to replace
the U.S. dollar with a basket of currencies in oil trading.
Oil prices rose slightly on Monday after data showing the
U.S. services sector expanded for the first time since August
2008 rekindled optimism that an economic recovery is gaining
traction.
U.S. crude for November delivery <CLc1> slipped 4 cents to
$70.37 a barrel by 0223 GMT, after gaining 46 cents to settle
at $70.41 on Monday. London Brent <LCOc1> inched lower by 4
cents to $68.00.
"Investors are cautious and are wanting to see more
evidence of improving demand," said David Moore, a commodities
analyst at the Commonwealth Bank of Australia.
"Oil prices will take direction from the U.S. dollar, while
the inventory report will also set the tone."
Traders have been looking to macroeconomic data and
equities markets for signs of a potential end of the recession
that could boost consumption and draw down high oil
inventories.
U.S. crude and product inventories likely rose last week,
according to a preliminary Reuters poll of analysts. []
The American Petroleum Institute will release its inventory
report on Tuesday at 4:30 p.m. EDT (2030 GMT), while the U.S.
Energy Information Administration (EIA) will issue its own
supply data on Wednesday.
The dollar fell against against the euro and the yen on
Tuesday after Britain's Independent newspaper reported that
Arab states were in talks to end the use of the dollar for oil
trading. []
Quoting unnamed sources, including Gulf Arab and Chinese
banking sources, it said Gulf Arab states were in secret talks
with Russia, China, Japan and France "to end dollar dealings
for oil, moving instead to a basket of currencies including the
Japanese yen and Chinese yuan, the euro, gold and a new,
unified currency planned for nations in the Gulf".
Analysts said ending the use of the dollar as the currency
used to settle oil trades between countries would be an easy
task, but a move to replace the currency in which oil is priced
would require a massive effort.
"First they will need to select a basket of currencies and
issues surrounding that are: which are the currencies to be
included in the basket and what ratios to use," said Victor
Shum, an energy analyst at Purvin & Gertz Consultancy.
"It's already a big hurdle just to move oil from one
currency to another, let alone a basket of currencies. If there
was already a significant proportion of global oil trade being
priced in non-U.S. dollar now, than perhaps there would be more
pressure to price crude in another currency. But we're still
far from that."
For a snap analysis on replacing the use of the dollar for
oil deals, click on []
Investors will keep a close watch on the U.S. weekly retail
sales data, the EIA energy outlook for October and the U.S. API
weekly crude stocks report to uncover more clues on the pace of
recovery in the world's largest energy consumer.
Oil gained nearly 6 percent last week, largely bolstered by
a U.S. government report mid-week showing a surprise drop in
gasoline inventories as well as tensions between key oil
exporter Iran and the West over Tehran's nuclear programme.
But some analysts said that crude prices, which have been
trading in the $65-$75 range seen over the past two months, are
unlikely to break beyond the $75 mark until energy demand
worldwide starts to show more convincing signs of a rebound.
(Reporting by Fayen Wong; Editing by Clarence Fernandez)
