Oil prices extend 2-day winning streak, await inventory data

SINGAPORE Oil prices extended their two-day winning streak on Wednesday, posting slight gains as the dollar weakened while investors waited for more inventory data for clearer cues on demand trends.

The price of crude oil rose 17 cents, or 0.2 per cent, to $83.86 a barrel by 0740 GMT, after gaining 3.3 per cent in the previous session.

U.S. West Texas Intermediate WTI crude futures went up 31 cents, or 0.4 per cent, to $77.45, after adding 4.1 per cent in the previous session.

Oil benchmarks are expected to retain support after Federal Reserve Chair Jerome Powell sounded less hawkish on interest rates than markets had expected, while the latest data showed that U.S. crude inventories fell despite earlier expectations of a climb.

The improved risk sentiment in the aftermath of Fed Chair Jerome Powell's comments seems to be tapped on for some upside in oil prices, after seeing a lacklustre performance since January, said IG's market analyst Yeap Jun Rong.

The overnight downturn in the US dollar has been more measured than before, according to Yeap, but he said that any continued recovery in the dollar could still be a headwind for oil prices.

The dollar index was down slightly on Wednesday, extending losses after Powell made comments on Tuesday, making oil cheaper for those holding other currencies.

The market is hoping that the world's biggest economy and oil consumer can dodge a slowdown in economic activity or even a recession, and avoid a slump in oil demand due to less aggressive interest rate hikes in the United States.

"I think we're in a balanced market," said Justin Smirk, senior economist at Westpac.

If we have more than expected growth out of the developing world, oil prices will be firmer and OPEC will have to step up output. He said that we don't see a big surge in demand.

The weekly inventory data from the American Petroleum Institute industry group showed crude stocks fell by about 2.2 million barrels in the week ending February 3, according to market sources.

Nine analysts polled by Reuters said that crude stocks grew by 2.5 million barrels.

Fuel and distillate inventories went up by more than expected, with gasoline stocks up by 5.3 million barrels and distillate stocks, which include diesel and heating oil, up by about 1.1 million barrels.

The market will be looking at the data from the U.S. Energy Information Administration, due at 1530 GMT, to see if there is a decline in crude stocks.