We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Mon 8 Dec 2008 08:47 AM

Font Size

- Aa +

Oil jumps 6% above $43

UPDATE 2: Crude prices claw back share of near-record decline last week over fears of global recession.

Oil leapt six percent to over $43 on Monday, reversing a share of last week's near-record decline as Asian stock markets rose and Saudi Arabia cut January oil supplies a bit more deeply for a few Asian refiners.

News of the world's biggest exporter tightening supplies even ahead of OPEC's meeting next week helped oil end a six-session losing streak, but failed to fully counter the growing sense of economic gloom and demand despair that led to a one-quarter fall in prices last week, the biggest weekly drop in nearly 18 years.

US crude for January delivery rose $2.55 to $43.36 a barrel by 0634 GMT after dropping on Friday by over six percent to close at a two-year low of $40.81.

London Brent crude rose $2.51 to $42.25 a barrel.

Friday's steep losses came after a US report showed the heaviest job losses in 34 years in the world's top energy consumer, adding to concerns that we have not yet seen the full extent of the damage being wrought on the economy.

But battered US equity markets managed to squeeze out three to four percent gains by Friday's close thanks to a late rally, aided in part by low oil prices. That positive feedback loop came full circle to boost sentiment in crude on Monday as Asian markets also rallied, with the Nikkei ending up five percent.

"People are now buying back short positions after the rebound in US equities last Friday," said Tetsu Emori, a commodities fund manager at Japan's Astmax Co.

In the week to Dec. 2, just as prices had begun the latest leg down, crude oil market speculators pared their tiny net long positions marginally, data showed on Friday.

"We are also looking at the relief plan for the auto makers, that will be quite important," said Emori.

White House and congressional negotiators worked on Sunday to iron our remaining differences over an emergency rescue for the struggling auto industry in a move that Emori said should provide a sentiment boost for financial markets.

Monday's rally spanned the commodities complex after the Reuters-Jefferies CRB index of 19 commodities plunged 14 percent last week, its biggest ever weekly decline.

Just five months after oil hit a high of over $147, analysts are now slashing their price and demand forecasts for fear that a spreading recession will trigger a deep drop in consumption.

Merrill Lynch said oil could drop to $25 a barrel if the global recession extends to China, while the International Energy Agency (IEA) cut its forecast for average annual oil demand growth to 2013 to 1.2 percent from 1.6 percent.

The rapid, steep retracement of oil prices has prompted many OPEC members to call for increasingly strong action when the cartel meets on Dec. 17 in Algeria.

OPEC has already agreed to cut about two million barrels per day (bpd) of production, and although not all members appear to be contributing their share of the cut-backs kingpin Saudi Arabia signalled its intent to keep the taps tight.

The world's top exporter told at least two oil refiners in Asia on Monday that it would deepen oil supply cuts to as much as 10 percent of normal contracted volumes in January versus a five percent cut in December supplies.

But at least three other refiners in Japan and South Korea said their shipments would remain steady from this month at five percent below the norm, industry sources said.

OPEC may need to make a cut of as much as two million bpd - which would be its biggest one-time reduction in over a decade - in order to bolster prices in a market focused on demand.

"The current downturn in prices has already priced in at least a 1.5 million bpd cut," said Emori. (Reuters)

Arabian Business: why we're going behind a paywall

For all the latest energy and oil news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Real news, real analysis and real insight have real value – especially at a time like this. Unlimited access ArabianBusiness.com can be unlocked for as little as $4.75 per month. Click here for more details.