SINGAPORE: Brent oil futures fell below $87 a barrel on Thursday, pressured by a stronger U.S. dollar after the Federal Reserve painted a brighter outlook for the U.S. economy.
The U.S. central bank on Wednesday ended its monthly bond purchase programme and showed confidence in the prospects for the U.S. economy. While that boosts the outlook for demand from the world's top oil user, the dollar is gaining as expectations rise that the Fed could lift interest rates soon.
A stronger greenback makes dollar-priced commodities such as oil more expensive for buyers using other currencies. The dollar hit a 3-1/2 week high against a basket of currencies.
"Anything priced in U.S. dollars is seeing a fall since FOMC released that statement and that goes right across the commodities complex," said Ben Le Brun, market analyst at OptionsXpress in Sydney, referring to the statement released after a two-day Fed meeting.
Brent crude for December delivery was down 20 cents at $86.92 a barrel by 0720 GMT, off an early low of $86.80. December U.S. crude fell 34 cents to $81.86 per barrel.
Both Brent and West Texas Intermediate climbed on Wednesday after data showed U.S. crude stockpiles rose less than expected last week, offering some relief for a market that had been hit hard this year by a supply glut.
U.S. crude inventories rose 2.1 million barrels last week, less than the 3.4-million-barrel increase expected by analysts in a Reuters poll.
"Although U.S. crude inventories increased lower than expected, this still does not alleviate the oversupply situation in the U.S.," Phillip Futures said in a research note.
"U.S. crude inventories are still higher than past years and it is only a matter of time before we see inventories start to increase again, causing prices to drop again."
DEMAND OUTLOOK
A 25 percent slide in oil prices from June had raised suggestions that the Organization of the Petroleum Exporting Countries would curb output to rescue prices. But some OPEC members have not warmed to the idea of cutting production.
There is unlikely to be a big change in OPEC's oil output next year and there is no need to panic over the crude price drop, OPEC secretary general Abdullah al-Badri said on Wednesday.
But the better outlook for the U.S. economy is helping limit losses in oil prices on Thursday.
"If we see continued gains in the U.S. employment market that should just improve the overall picture in terms of demand and obviously that will be good for oil prices," said Le Brun, who sees support for Brent at $85 and for WTI at $80.
Investor focus will turn to U.S. gross domestic product data due later in the day, with growth seen coming in at 3 percent for the third quarter, according to a Reuters poll of economists. That would be down from a 4.6 percent pace in the second quarter, the fastest growth since 2011.
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