* Oil price reaches highest since May 4 on QE prospects
* Price eases in later trading ahead of EIA report, 1430 GMT
* Strong equities, weak dollar moderate oil's decline
(Updates prices, adds graphic)
By David Turner
LONDON, Oct 6 (Reuters) - Crude oil retreated from a
five-month high of $83.33 a barrel reached earlier on Wednesday,
because of nervousness ahead of the release of U.S. inventory
data at 1430 GMT.
Oil initially rose at the prospect of a second round of U.S.
quantitative easing (QE2), which would bolster the economy of
the world's largest oil consumer. It was also supported by
strong equity markets and a weak dollar.
However, traders said the market was wary of trading crude
at above $83, in case the stock data from the Energy Information
Administration showed a higher than expected rise in crude
inventories.
"Equities are still higher, the dollar is still holding near
lows, and sentiment remains bullish," said Andrey Kryuchenkov,
commodities analyst at VTB Capital in London. "But people are
just nervously waiting ahead of the U.S. energy data."
Front-month U.S. crude <CLc1> rose 51 cents on Wednesday to
a five-month high of $83.33 a barrel, before easing to trade six
cents up on the day at $82.88 at 1415 GMT. ICE Brent <LCOc1>
also rose six cents to $84.90.
Expectations have grown that the U.S. Federal Reserve will
early next month announce QE2 to boost growth, after the Bank of
Japan cut interest rates on Tuesday.
Traders said the prospect of U.S. QE2 has boosted oil in
recent days, both directly by increasing expectations that the
extra liquidity will be used to buy oil, and indirectly by
supporting equities, which have been highly correlated with oil
this year. European and Asian equities markets rose on
Wednesday, although the S&P 500 was almost flat in early U.S.
trading. <> <> <.SPX>
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For a graphic on the correlation between oil and equities
see:
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However, Olivier Jakob of consultants Petromatrix in Zug,
Switzerland, said QE2 would only boost oil prices "for a short
while, because in the end the fundamentals count. We have high
inventories, and high spare capacity upstream and downstream."
Prices of U.S. crude have over the past week topped the
$70-$80 range for the first time in almost two months as
investors expected central banks would embark on a second round
of expansionary monetary policy to boost an anaemic recovery.
U.S. OIL INVENTORIES
U.S. crude inventories gained 4.4 million barrels in the
week to October 1, the American Petroleum Institute (API)
reported late on Tuesday, compared with average analyst
expectations for a 300,000 barrel increase in a Reuters survey.
Stockpiles of gasoline declined 4.1 million barrels last
week, the API said, versus a forecast 200,000 barrel decrease,
while supplies of distillate fuels including heating oil and
diesel slid 777,000, nearly in line with the expected 900,000
barrel drop.
Government statistics on oil inventories and demand are due
from the Energy Information Administration at 1430 GMT.
The pace of growth accelerated in the dominant U.S. services
sector last month even as it slowed among Chinese and European
firms, boosting hopes the sluggish U.S. economy was avoiding
stagnation.
But U.S. hiring is still weak and the jobless rate stands at
9.6 percent. The strong services data may not deter the Fed from
trying in coming weeks to boost growth by pumping more money
into the economy. Key monthly non-farm payrolls data is due on
Friday.
French industrial unrest threatened to intensify disruption
to the oil market, after news that strikers at France's top oil
port, Fos-Lavera, would on Wednesday meet unions of nearby
refineries over possible joint action. The strike at the
Mediterranean port is in its tenth day. []
(Additional reporting by Alejandro Barbajosa; editing by James
Jukwey)
