* Gulf in talks on replacing dollar for oil-report
* Dollar falls against euro, yen
* Market eyes preliminary U.S. crude inventory report
(Recasts, updates prices, analyst's comments, adds Asia shares)
By Fayen Wong
PERTH, Oct 6 (Reuters) - Oil prices rose toward $71 a
barrel on Tuesday, helped by a fall in the dollar after a
newspaper report that Gulf Arab states were in secret talks to
replace the U.S. dollar with a basket of currencies in oil
trading.
A bounce in the Asian stock markets, spurred by a positive
U.S. services sector report, also helped to improve investors'
mood and rekindled hopes the recovery in the world's largest
economy was gaining traction.
U.S. crude for November delivery <CLc1> rose 36 cents to
$70.77 a barrel by 0654 GMT, after gaining 46 cents to settle
at $70.41 on Monday. London Brent <LCOc1> was up 26 cents to
$68.30.
"Oil is taking directions from the U.S. dollar. But prices
are still trading sideways and it may be hard for prices to
break out of the $75 mark until there are convincing signs of a
sustained demand recovery," said David Moore, a commodities
analyst at the Commonwealth Bank of Australia.
Oil prices rose slightly on Monday after data showing the
U.S. services sector expanded for the first time since August
2008, fuelling optimism that energy demand would soon recover
on the back of an improving economy.
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 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".
However, Saudi Arabia's central bank chief said on Tuesday
that the report was "absolutely incorrect", while Algeria's
finance minister said there was no need for a new currency in
oil trade. [][]
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.
(Reporting by Fayen Wong; Editing by Clarence Fernandez)
