0357 GMT [Dow Jones] China shares turn down midday, erasing earlier gains on wave of profit-taking as investors remain concerned over potential monetary tightening by central bank following uptick in February CPI, analyst says; Shanghai Composite down 0.5% at 4146.56 in moderate volume vs 4254.67 intraday high; support around 4060 in afternoon. "The poor market performance despite strong rallies in U.S. and Hong Kong stocks, indicates investors' confidence is really low," says Shen Yang at Orient Securities. Financial shares, which previously led market higher, turn broadly lower midday on profit-taking; China Merchants Bank (600036.SH) down 2.4% at CNY30.55; Shanghai Pudong Development Bank (600000.SH) down 2.4% at CNY34.60; Shenzhen Index down 0.4% at 1318.93. (JSX)
According to The Business Times, a landed housing parcel in Jurong West received a low top bid of S$11.8m or S$77.80 psf from Boon Keng Development. The only other bid received was S$10.3m or S$68.1 psf from a unit of Malaysian listed Sunway Holdings. The bids were significantly below the expectations of S$200-S$250 psf. The selling price expectations are around S$900k to S$1m.
We believe that the low bids especially for the landed housing site signals an even weaker market sentiment because the landed home purchases are usually based on genuine demand due to high owner occupation rates. In addition to the weak sentiment, we think that the narrowing margins due to rising construction costs and the reduced ability to pass on the cost to the end buyers resulted into low bids for the site.
Best Regards Vikrant Pandey Investment Analyst UOB Kay Hian Research
Fed's Loan Program Provide Little Aid to Agency Mortgage Bonds
By Jody Shenn
March 11 (Bloomberg) -- Yields on agency mortgage securities relative to U.S. Treasuries traded near 22-year highs, as the Federal Reserve's plan to temporarily swap up to $200 billion of government debt for mortgage bonds failed to ease concern that a liquidity and capital crunch will continue to roil debt markets.
The difference in yields on the Bloomberg index for Fannie Mae's current-coupon, 30-year fixed-rate mortgage bonds and 10- year government notes narrowed about 5 basis points, to 223 basis points, paring a larger decline. The spread helps determine the interest rate on new prime home mortgages of $417,000 or less.
The drop still left the spread about 87 basis points wider than on Jan. 15, the recent low, and higher than last week. Banks and securities firms last month launched a new round of demands for more collateral on loans secured by debt to investment funds including Thornburg Mortgage Inc. and Carlyle Capital Corp., forcing sales and eroding potential returns, and few buyers have emerged. The spread reached the highest since 1986 on March 5.
The new Fed program announced today ``prevents things from getting considerably worse, and it helps the broker-dealer community a fair amount,'' said Ajay Rajadhyaksha, head of fixed- income strategy at Barclays Capital. ``But by the end of the day people will realize it's not a silver bullet.''
Shares of Fannie Mae and Freddie Mac, the government- chartered companies that guarantee most agency mortgage securities and represent two of the largest holders the bonds and other mortgage debt, rallied after plunging to the lowest since 1995 yesterday. Spreads on the companies' own debt narrowed. Markit ABX indexes, which are used to create derivatives tied to the performance of subprime-loan securities, climbed, suggesting a rise in prices for some home-loan bonds off record lows.
New Tool
The Fed set up a new tool, the Term Securities Lending Facility, to lend Treasuries to primary dealers, the 20 banks and securities firms that trade directly with the central bank, for 28-day periods, through weekly auctions. The Fed also said in a statement in Washington that it's increasing the amount of dollars available to European central banks through swap lines.
``Dealers now have more liquidity and financing ability than they had and they can pass that along to investors as they see fit,'' Kenneth Hackel, the managing director of fixed-income strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut, said in an interview today. ``The Fed's move doesn't completely resolve'' the effects of tighter bond-secured lending and trading difficulty, ``but it is a positive step.''
The move ``helps the liquidity situation: It doesn't necessarily change the supply-demand dynamics,'' Rajadhyaksha said in a telephone interview from New York today. ``One of the problems the mortgage market faces right now is that no one has capital to go out and buy more.''
Mortgage Debt
Outstanding agency mortgage securities, guaranteed by Fannie Mae and Freddie Mac or federal agency Ginnie Mae, total almost $4.5 trillion, about the same size as the U.S. Treasury market. Bloomberg current-coupon indexes represent the average of yields for the two groups of bonds with prices just above and below face value, the ones lenders typically package new loans into.
Shares of Washington-based Fannie Mae and Freddie Mac of Mclean, Virginia each jumped as much as more than 15 percent in New York Stock Exchange trading today, before pulling back. Fannie Mae rose 57 cents, or 3.3 percent, to $17.96, and Freddie Mac climbed 69 cents, or 3.5 percent, to $20.5 at 1:07 p.m.
Spreads tightened on the companies' direct obligations, which are also eligible to be swapped by dealers under the new Fed program. Spreads on Fannie Mae's five-year bonds over 5-year Treasuries dropped about 10 basis points from the highest in at least a decade to 103 basis points, according to Bloomberg data. That spread entered last month at about 64 basis points. A basis point is 0.01 percentage point.
ABX Index
An ABX index tied to 20 subprime-mortgage securities rated AAA when created in the second half of 2006 rose about 3 percent to a mid-price of 55 at 1:07 p.m., according to Deutsche Bank AG. That's still down from 74.19 on Feb. 1, according to London-based administrator Markit Group Ltd. The credit-default swaps cover losses if the securities aren't repaid as expected, in return for regular insurance-like premiums.
Prices for agency securities backed by adjustable-rate mortgages with at least three years of fixed rates fell 1.81 percent this month through yesterday, according to Lehman Brothers Holdings Inc. index data. Fixed-rated securities fell 1.39 percent, according to the New York-based company's indexes. The various classes of collateralized mortgage obligations used to repackage agency bonds collectively have fallen 1.08 percent, according to Merrill Lynch & Co. index data.
The Fed move should ease concern that brokers, such as New York-based Bear Stearns Cos., face a cash crunch, Rajadhyaksha said, especially because of the inclusion of AAA rated non-agency mortgage securities. Their quoted prices have tumbled this year by about four times the amount as they did last year, he said.
Spread Surge
Spreads have surged as investors assume that banks have little room to make new investments or maintain credit to funds at previous terms amid rising losses and a flood of unwanted assets, according to bond buyers such as Scott Simon, head of mortgage-backed bonds at Pacific Investment Management Co.
The Fed announcement today stops short of the direct U.S. purchases of agency mortgage securities called for yesterday by Simon, whose Newport Beach, California-based unit of Allianz SE runs the world's largest bond fund.
RBS's Hackel earlier today recommended for the first time in two months that investors add more agency mortgage securities to their holdings than are found in benchmark bond indexes because the yields offered over benchmarks had become ``very difficult to ignore.'' The Fed announcement makes the suggestion well-timed, he said in the telephone interview.
Barclays' Rajadhyaksha published a report before the announcement in which he moved to a ``neutral'' outlook for spreads, partly citing possible government intervention.
``It would have been better if this announcement had been extended to non-banks and non-broker dealers also'' because previous Fed actions through those firms meant to stabilize bond markets usually haven't been fully passed on through their lending to other investors, Rajadhyaksha said in the interview.
China central bank drains 175 bln yuan in open market operations
The People's Bank of China (PBOC) on Tuesday drained 175 billion yuan (24.6 billion U.S. dollars) from the inter bank market through central bank bill issues and repurchase transactions.
The PBOC issued 75 billion yuan of one-year bills with a yield of 4.0583 percent, flat from last week. It also conducted 100 billion yuan of 28-day repos at a yield of 3.20 percent, also flat from last week.
Analysts said the central bank was using more open market operations to absorb excess liquidity as the interest rates cut in the United States had left it a more difficult choice to raise the rates.
On Thursday, the PBOC soaked up 275 billion yuan by issuing three-month and three-year central bank bills and conducting the 28-day repos.
The large size of open market operations were sending the market clear signals of further efforts to curb the inflation that surged to the almost 12-year high of 8.7 percent in February.
M2, the broader measure of money supply, which covers cash in circulation plus all deposits, rose 18.94 percent in January, 2.22percentage points higher than a month earlier, according to the PBOC.
It also said new renminbi loans in January surged to a record high of 803.6 billion yuan, up 237.3 billion yuan from a year earlier.
Bird Flu Showing Signs of Mutation Says China Expert
Mar 11, 2008
HONG KONG—One of China's top doctors has said that the H5N1 bird flu virus has shown signs of mutation and can kill human victims more easily if treatment is not given early enough, newspapers reported on Tuesday.
Zhong Nanshan, an expert on respiratory diseases, told reporters in Beijing that vigilance should be kept up, especially when H5N1 human cases are surfacing at a time when seasonal human influenza is at a peak.
"When avian flu is around and human flu appears, this will raise the chances of avian flu turning into a human flu. We have to be very alert and careful in March," Zhong was quoted by the Ming Pao newspaper as saying.
"People who were killed by bird flu last year and this year were too poor to seek treatment. If you happen to have high fever and pneumonia, you must seek treatment fast."
Although the H5N1 virus has infected only 368 people around the world since 2003, its mortality rate has been worryingly high, killing 234 of them.
Experts fear it could trigger a pandemic killing millions if it ever learns to transmit efficiently among people.
"The bird flu virus has shown signs of mutation. If infected people don't get treatment in a timely manner, they can die easily," Zhong was quoted as telling Hong Kong reporters on the sidelines of the Chinese parliament's annual meeting.
Three Chinese died this year of H5N1 bird flu and they were infected probably through contact with sick poultry. The World Health Organisation said there was no evidence of transmission between humans in all three cases.
Hong Kong, which lies at the south of China, is going through a seasonal flu peak, with outbreaks reported in a growing number of schools.
A 3-year-old girl died last week of human H3N2 flu and authorities have ordered schools to conduct fever checks and advise those who are unwell to stay home.
A 7-year-old boy died around noon on Tuesday after being admitted to hospital last week with flu-like symptoms, a health department spokesman said. Authorities are still trying to determine the cause of his illness. — Reuters
Futures on the rise although data show surprise rally in U.S. inventories
By Moming Zhou & Polya Lesova March 12, 2008
SAN FRANCISCO (MarketWatch) -- Crude-oil futures gained more than $1 to approach $110 a barrel in Wednesday afternoon trading as the dollar fell to a new low against the euro, boosting dollar-denominated oil prices, and as speculation increased in the futures market.
Wednesday's gains came even after government data showed a surprising rally in U.S. crude inventories in the latest week.
Crude oil for April delivery gained $1.05, or 1%, to $109.8 a barrel on the New York Mercantile Exchange in early afternoon session. It was in negative territory during most morning trading after the inventories report.
U.S. crude inventories rose 6.2 million barrels to 311.6 million barrels in the week ended March 7, U.S. Energy Information Administration reported Wednesday. Analysts surveyed by Platts expected a rise of 1.6 million barrels.
"Today's report is overwhelmingly bearish," said Chris Lafakis, an analyst at Moody's Economy.com. "There isn't a positive element in today's report for the oil bulls."
But some analysts believe the bearish news could instead push oil prices higher as investment funds could increase their bids with a buy-the-dip mentality, especially when the dollar kept sliding. Crude hit a new high of $109.72 a barrel on Tuesday as the dollar fell.
The bears are hoping that in the short term this week's supplies numbers "could dent the recent rally, but we would not hold our breath," said Edward Meir, an analyst at MF Global, in a research note.
The U.S. dollar on Wednesday gave back part of the bounce seen on back of the Federal Reserve's effort to significantly boost liquidity in near-frozen credit markets. The greenback fell to the lowest level against the euro, which hit $1.5512 Tuesday morning.
Crude prices, which are denominated in the dollar, tend to rise when the greenback falls, as a weaker dollar makes crude less expensive to buyers holding other currencies. It also eats into oil producers' dollar revenue and could prompt them to curtail production, thus adding more upward pressures on oil.
Increasing speculation
The gap between WTI crude, the underlying product of Nymex crude futures, and Brent oil, a type of crude typically refined in Northwest Europe, widened to over $4 a barrel on Wednesday, an unusual gap reflecting growing speculative buying of the U.S. contract, an analyst said on Wednesday.
"At present WTI is trading at an approximate $4.00/barrel premium to Brent rather than the traditional $1 to $1.50 per barrel range which normally reflects the transportation price of moving a barrel of Brent to the U.S.," said Peter Hitchens, an analyst at Seymour Pierce. "We believe that this is evidence of increased buying by hedge funds in the U.S."
Government data showed speculators and managers of large investment funds, those who don't need physical oil, dominated bets on rising oil prices, while refiners and other oil users were betting oil prices would move lower.
Latest data from U.S. Commodity Futures Trading Commission showed long positions from speculators, in which investors expect oil prices to move higher, outnumbered short positions, or bets on lower prices, by nearly 100,000 contracts last week. Net long positions more than tripled in one month.
This was the fourth consecutive week marking an increase in net long positions from financial traders. Some analysts are expecting another build-up in this week's net long positions.
Inventories in detail
Crude inventories at Cushing, Okla., the delivery point for crude traded on the Nymex, rose sharply by 2.7 million barrels to 18.9 million barrels, EIA said in the report.
EIA also reported U.S. gasoline supplies rose by 1.7 million barrels in the latest week, while distillate stocks fell by 1.2 million barrels. Analysts surveyed by Platts, an energy information provider, were expecting gasoline supplies fell by 900,000 barrels and distillate stocks dropped by 2 million barrels.
U.S. refineries operated at 85% of their operable capacity last week, down from the previous week's 85.9%. U.S. crude oil imports averaged 10.5 million barrels per day last week, up 1.1 million barrels per day from the previous week.
Also on Nymex, April reformulated gasoline fell slightly to $2.7172 a gallon and April heating oil rose 1.16 cent to $3.0073 a gallon.
April natural gas rose slightly to $10.005 per million British thermal units.
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China Shrs Turn Dn Midday On CB Tightening Fears
0357 GMT [Dow Jones] China shares turn down midday, erasing earlier gains on wave of profit-taking as investors remain concerned over potential monetary tightening by central bank following uptick in February CPI, analyst says; Shanghai Composite down 0.5% at 4146.56 in moderate volume vs 4254.67 intraday high; support around 4060 in afternoon. "The poor market performance despite strong rallies in U.S. and Hong Kong stocks, indicates investors' confidence is really low," says Shen Yang at Orient Securities. Financial shares, which previously led market higher, turn broadly lower midday on profit-taking; China Merchants Bank (600036.SH) down 2.4% at CNY30.55; Shanghai Pudong Development Bank (600000.SH) down 2.4% at CNY34.60; Shenzhen Index down 0.4% at 1318.93. (JSX)
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朋友
According to The Business Times, a landed housing parcel in Jurong West received a low top bid of S$11.8m or S$77.80 psf from Boon Keng Development. The only other bid received was S$10.3m or S$68.1 psf from a unit of Malaysian listed Sunway Holdings. The bids were significantly below the expectations of S$200-S$250 psf. The selling price expectations are around S$900k to S$1m.
We believe that the low bids especially for the landed housing site signals an even weaker market sentiment because the landed home purchases are usually based on genuine demand due to high owner occupation rates. In addition to the weak sentiment, we think that the narrowing margins due to rising construction costs and the reduced ability to pass on the cost to the end buyers resulted into low bids for the site.
Best Regards
Vikrant Pandey
Investment Analyst
UOB Kay Hian Research
Fed's Loan Program Provide Little Aid to Agency Mortgage Bonds
By Jody Shenn
March 11 (Bloomberg) -- Yields on agency mortgage securities relative to U.S. Treasuries traded near 22-year highs, as the Federal Reserve's plan to temporarily swap up to $200 billion of government debt for mortgage bonds failed to ease concern that a liquidity and capital crunch will continue to roil debt markets.
The difference in yields on the Bloomberg index for Fannie Mae's current-coupon, 30-year fixed-rate mortgage bonds and 10- year government notes narrowed about 5 basis points, to 223 basis points, paring a larger decline. The spread helps determine the interest rate on new prime home mortgages of $417,000 or less.
The drop still left the spread about 87 basis points wider than on Jan. 15, the recent low, and higher than last week. Banks and securities firms last month launched a new round of demands for more collateral on loans secured by debt to investment funds including Thornburg Mortgage Inc. and Carlyle Capital Corp., forcing sales and eroding potential returns, and few buyers have emerged. The spread reached the highest since 1986 on March 5.
The new Fed program announced today ``prevents things from getting considerably worse, and it helps the broker-dealer community a fair amount,'' said Ajay Rajadhyaksha, head of fixed- income strategy at Barclays Capital. ``But by the end of the day people will realize it's not a silver bullet.''
Shares of Fannie Mae and Freddie Mac, the government- chartered companies that guarantee most agency mortgage securities and represent two of the largest holders the bonds and other mortgage debt, rallied after plunging to the lowest since 1995 yesterday. Spreads on the companies' own debt narrowed. Markit ABX indexes, which are used to create derivatives tied to the performance of subprime-loan securities, climbed, suggesting a rise in prices for some home-loan bonds off record lows.
New Tool
The Fed set up a new tool, the Term Securities Lending Facility, to lend Treasuries to primary dealers, the 20 banks and securities firms that trade directly with the central bank, for 28-day periods, through weekly auctions. The Fed also said in a statement in Washington that it's increasing the amount of dollars available to European central banks through swap lines.
``Dealers now have more liquidity and financing ability than they had and they can pass that along to investors as they see fit,'' Kenneth Hackel, the managing director of fixed-income strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut, said in an interview today. ``The Fed's move doesn't completely resolve'' the effects of tighter bond-secured lending and trading difficulty, ``but it is a positive step.''
The move ``helps the liquidity situation: It doesn't necessarily change the supply-demand dynamics,'' Rajadhyaksha said in a telephone interview from New York today. ``One of the problems the mortgage market faces right now is that no one has capital to go out and buy more.''
Mortgage Debt
Outstanding agency mortgage securities, guaranteed by Fannie Mae and Freddie Mac or federal agency Ginnie Mae, total almost $4.5 trillion, about the same size as the U.S. Treasury market. Bloomberg current-coupon indexes represent the average of yields for the two groups of bonds with prices just above and below face value, the ones lenders typically package new loans into.
Shares of Washington-based Fannie Mae and Freddie Mac of Mclean, Virginia each jumped as much as more than 15 percent in New York Stock Exchange trading today, before pulling back. Fannie Mae rose 57 cents, or 3.3 percent, to $17.96, and Freddie Mac climbed 69 cents, or 3.5 percent, to $20.5 at 1:07 p.m.
Spreads tightened on the companies' direct obligations, which are also eligible to be swapped by dealers under the new Fed program. Spreads on Fannie Mae's five-year bonds over 5-year Treasuries dropped about 10 basis points from the highest in at least a decade to 103 basis points, according to Bloomberg data. That spread entered last month at about 64 basis points. A basis point is 0.01 percentage point.
ABX Index
An ABX index tied to 20 subprime-mortgage securities rated AAA when created in the second half of 2006 rose about 3 percent to a mid-price of 55 at 1:07 p.m., according to Deutsche Bank AG. That's still down from 74.19 on Feb. 1, according to London-based administrator Markit Group Ltd. The credit-default swaps cover losses if the securities aren't repaid as expected, in return for regular insurance-like premiums.
Prices for agency securities backed by adjustable-rate mortgages with at least three years of fixed rates fell 1.81 percent this month through yesterday, according to Lehman Brothers Holdings Inc. index data. Fixed-rated securities fell 1.39 percent, according to the New York-based company's indexes. The various classes of collateralized mortgage obligations used to repackage agency bonds collectively have fallen 1.08 percent, according to Merrill Lynch & Co. index data.
The Fed move should ease concern that brokers, such as New York-based Bear Stearns Cos., face a cash crunch, Rajadhyaksha said, especially because of the inclusion of AAA rated non-agency mortgage securities. Their quoted prices have tumbled this year by about four times the amount as they did last year, he said.
Spread Surge
Spreads have surged as investors assume that banks have little room to make new investments or maintain credit to funds at previous terms amid rising losses and a flood of unwanted assets, according to bond buyers such as Scott Simon, head of mortgage-backed bonds at Pacific Investment Management Co.
The Fed announcement today stops short of the direct U.S. purchases of agency mortgage securities called for yesterday by Simon, whose Newport Beach, California-based unit of Allianz SE runs the world's largest bond fund.
RBS's Hackel earlier today recommended for the first time in two months that investors add more agency mortgage securities to their holdings than are found in benchmark bond indexes because the yields offered over benchmarks had become ``very difficult to ignore.'' The Fed announcement makes the suggestion well-timed, he said in the telephone interview.
Barclays' Rajadhyaksha published a report before the announcement in which he moved to a ``neutral'' outlook for spreads, partly citing possible government intervention.
``It would have been better if this announcement had been extended to non-banks and non-broker dealers also'' because previous Fed actions through those firms meant to stabilize bond markets usually haven't been fully passed on through their lending to other investors, Rajadhyaksha said in the interview.
China central bank drains 175 bln yuan in open market operations
The People's Bank of China (PBOC) on Tuesday drained 175 billion yuan (24.6 billion U.S. dollars) from the inter bank market through central bank bill issues and repurchase transactions.
The PBOC issued 75 billion yuan of one-year bills with a yield of 4.0583 percent, flat from last week. It also conducted 100 billion yuan of 28-day repos at a yield of 3.20 percent, also flat from last week.
Analysts said the central bank was using more open market operations to absorb excess liquidity as the interest rates cut in the United States had left it a more difficult choice to raise the rates.
On Thursday, the PBOC soaked up 275 billion yuan by issuing three-month and three-year central bank bills and conducting the 28-day repos.
The large size of open market operations were sending the market clear signals of further efforts to curb the inflation that surged to the almost 12-year high of 8.7 percent in February.
M2, the broader measure of money supply, which covers cash in circulation plus all deposits, rose 18.94 percent in January, 2.22percentage points higher than a month earlier, according to the PBOC.
It also said new renminbi loans in January surged to a record high of 803.6 billion yuan, up 237.3 billion yuan from a year earlier.
Source: Xinhua
Bird Flu Showing Signs of Mutation Says China Expert
Mar 11, 2008
HONG KONG—One of China's top doctors has said that the H5N1 bird flu virus has shown signs of mutation and can kill human victims more easily if treatment is not given early enough, newspapers reported on Tuesday.
Zhong Nanshan, an expert on respiratory diseases, told reporters in Beijing that vigilance should be kept up, especially when H5N1 human cases are surfacing at a time when seasonal human influenza is at a peak.
"When avian flu is around and human flu appears, this will raise the chances of avian flu turning into a human flu. We have to be very alert and careful in March," Zhong was quoted by the Ming Pao newspaper as saying.
"People who were killed by bird flu last year and this year were too poor to seek treatment. If you happen to have high fever and pneumonia, you must seek treatment fast."
Although the H5N1 virus has infected only 368 people around the world since 2003, its mortality rate has been worryingly high, killing 234 of them.
Experts fear it could trigger a pandemic killing millions if it ever learns to transmit efficiently among people.
"The bird flu virus has shown signs of mutation. If infected people don't get treatment in a timely manner, they can die easily," Zhong was quoted as telling Hong Kong reporters on the sidelines of the Chinese parliament's annual meeting.
Three Chinese died this year of H5N1 bird flu and they were infected probably through contact with sick poultry. The World Health Organisation said there was no evidence of transmission between humans in all three cases.
Hong Kong, which lies at the south of China, is going through a seasonal flu peak, with outbreaks reported in a growing number of schools.
A 3-year-old girl died last week of human H3N2 flu and authorities have ordered schools to conduct fever checks and advise those who are unwell to stay home.
A 7-year-old boy died around noon on Tuesday after being admitted to hospital last week with flu-like symptoms, a health department spokesman said. Authorities are still trying to determine the cause of his illness. — Reuters
Crude rallies to approach $110 as the dollar fall
Futures on the rise although data show surprise rally in U.S. inventories
By Moming Zhou & Polya Lesova
March 12, 2008
SAN FRANCISCO (MarketWatch) -- Crude-oil futures gained more than $1 to approach $110 a barrel in Wednesday afternoon trading as the dollar fell to a new low against the euro, boosting dollar-denominated oil prices, and as speculation increased in the futures market.
Wednesday's gains came even after government data showed a surprising rally in U.S. crude inventories in the latest week.
Crude oil for April delivery gained $1.05, or 1%, to $109.8 a barrel on the New York Mercantile Exchange in early afternoon session. It was in negative territory during most morning trading after the inventories report.
U.S. crude inventories rose 6.2 million barrels to 311.6 million barrels in the week ended March 7, U.S. Energy Information Administration reported Wednesday. Analysts surveyed by Platts expected a rise of 1.6 million barrels.
"Today's report is overwhelmingly bearish," said Chris Lafakis, an analyst at Moody's Economy.com. "There isn't a positive element in today's report for the oil bulls."
But some analysts believe the bearish news could instead push oil prices higher as investment funds could increase their bids with a buy-the-dip mentality, especially when the dollar kept sliding. Crude hit a new high of $109.72 a barrel on Tuesday as the dollar fell.
The bears are hoping that in the short term this week's supplies numbers "could dent the recent rally, but we would not hold our breath," said Edward Meir, an analyst at MF Global, in a research note.
The U.S. dollar on Wednesday gave back part of the bounce seen on back of the Federal Reserve's effort to significantly boost liquidity in near-frozen credit markets. The greenback fell to the lowest level against the euro, which hit $1.5512 Tuesday morning.
Crude prices, which are denominated in the dollar, tend to rise when the greenback falls, as a weaker dollar makes crude less expensive to buyers holding other currencies. It also eats into oil producers' dollar revenue and could prompt them to curtail production, thus adding more upward pressures on oil.
Increasing speculation
The gap between WTI crude, the underlying product of Nymex crude futures, and Brent oil, a type of crude typically refined in Northwest Europe, widened to over $4 a barrel on Wednesday, an unusual gap reflecting growing speculative buying of the U.S. contract, an analyst said on Wednesday.
"At present WTI is trading at an approximate $4.00/barrel premium to Brent rather than the traditional $1 to $1.50 per barrel range which normally reflects the transportation price of moving a barrel of Brent to the U.S.," said Peter Hitchens, an analyst at Seymour Pierce. "We believe that this is evidence of increased buying by hedge funds in the U.S."
Government data showed speculators and managers of large investment funds, those who don't need physical oil, dominated bets on rising oil prices, while refiners and other oil users were betting oil prices would move lower.
Latest data from U.S. Commodity Futures Trading Commission showed long positions from speculators, in which investors expect oil prices to move higher, outnumbered short positions, or bets on lower prices, by nearly 100,000 contracts last week. Net long positions more than tripled in one month.
This was the fourth consecutive week marking an increase in net long positions from financial traders. Some analysts are expecting another build-up in this week's net long positions.
Inventories in detail
Crude inventories at Cushing, Okla., the delivery point for crude traded on the Nymex, rose sharply by 2.7 million barrels to 18.9 million barrels, EIA said in the report.
EIA also reported U.S. gasoline supplies rose by 1.7 million barrels in the latest week, while distillate stocks fell by 1.2 million barrels. Analysts surveyed by Platts, an energy information provider, were expecting gasoline supplies fell by 900,000 barrels and distillate stocks dropped by 2 million barrels.
U.S. refineries operated at 85% of their operable capacity last week, down from the previous week's 85.9%. U.S. crude oil imports averaged 10.5 million barrels per day last week, up 1.1 million barrels per day from the previous week.
Also on Nymex, April reformulated gasoline fell slightly to $2.7172 a gallon and April heating oil rose 1.16 cent to $3.0073 a gallon.
April natural gas rose slightly to $10.005 per million British thermal units.
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