Oil recovers to $50 after hitting 42-month low

Oil rebounded from an early three-and-a-half year trough below $49 a barrel on Friday, tracking Asian equities that bounced back on rumours that China may cut interest rates later in the day.

Still, its 12 percent fall so far this week took oil close to a $100 drop from its July record high and set it on course for the steepest weekly decline since the week of October 6.

US light crude for January delivery rose 64 cents to $50.06 a barrel at 10.22am UAE time, its first increase after five straight sessions of losses. Earlier it fell to $48.25, the lowest in three and a half years.

London Brent crude gained 92 cents to $49.00 a barrel.

Asian stock markets rebounded from a five-year low touched earlier on Friday as a variety of rumours such as China cutting interest rates later in the day prompted investors to cover short positions before the weekend.

The price is dangerously close to the threshold where analysts say Gulf Arab countries could witness an abrupt decline in external surpluses next year.

Citigroup said on Tuesday in a research note that with oil at $50, Saudi Arabia, the UAE and Qatar would all post external trade deficits in 2009.

Citigroup said Saudi Arabia's deficit could hit 28 percent of the gross domestic product, compared with a surplus of 30 percent this year, when oil prices should average $99 a barrel.

Kuwait would be the only member of the Gulf Cooperation Council (GCC) to post an external surplus, it said.

US light crude for January delivery fell $1.02 to $48.40 a barrel at 6.09am UAE time, its sixth straight session of falls and a 14 percent drop for this week alone, heading for the largest weekly fall since early October.

London Brent crude shed 68 cents to $47.40 a barrel.

"The economy is pulling everything down like a black hole," said Anthony Nunan, risk management executive at Tokyo-based Mitsubishi Corp. "Until the economy stabilises, it will be hard for oil to put in a bottom."

Oil has lost two thirds of its value in just under four months since peaking above $147 in July, and is just above the lowest since May 2005 hit on Thursday.

Reflecting the sharp reversal in oil's fortunes, Goldman Sachs, which in May had been talking of a $200 a barrel superspike, on Thursday again cut its 2009 forecast for US crude oil to $80 a barrel from $86.

As demand tumbles, oil companies plan to store millions of barrels of crude in the hope economics will improve.

Shipping brokers said US oil trader Koch and Royal Dutch Shell had booked supertankers capable of storing 10 million barrels of crude, more than top exporter Saudi Arabia produces in a day.

The further falls in oil prices brought more Organization of the Petroleum Exporting Countries members out in support of further output cuts.

Libya's top oil official said the cartel may decide to reduce supply further at its informal meeting in Cairo next week if it finds members have implemented a previous decision to lower output.

The comments followed remarks from other OPEC members, including Kuwait, Iran and Venezuela, raising the possibility of a further cut in supply to prop up oil prices.

OPEC agreed in October to cut output by 1.5 million barrels per day, about 5 percent, from Nov. 1, but the move has failed to stem the decline in oil prices. (Reuters)

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