Oil moves above $50 a barrel

TheStar.com - Business -
Oil moves above $50 a barrel
November 21, 2008
Alex Kennedy
THE ASSOCIATED PRESS

SINGAPORE–Oil prices rose off a three-year low, creeping above $50 a barrel Friday in Asia as investors took a cue from a rebound in regional stock markets.

Light, sweet crude for January delivery was up 80 cents to $50.22 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore, after falling to $48.25 earlier in the session, the lowest level since May 18, 2005.

The December contract, which expired Thursday, fell overnight by $4.00 to settle at $49.62.

"Right now, oil is just following stock market sentiment," said Gerard Rigby, an energy analyst at Fuel First Consulting in Sydney.

Asian stock markets initially followed their U.S. counterparts down Friday, but then rallied. Japan's benchmark Nikkei index rose 2.7 per cent, Hong Kong's Hang Seng index gained 2.3 per cent and South Korea's key index was up 5.8 per cent.

Traders are still worried that a global recession will undermine energy demand. Already, oil prices have tumbled by two-thirds from their peak of nearly $150 a barrel in mid-July.

The Dow Jones industrial average fell 5.6 per cent Thursday to its lowest level since March 2003 after the Labor Department said new applications for jobless benefits exceeded analyst estimates and rose to the highest level of claims since July 1992.

The S&P 500 index fell 6.7 per cent Thursday to an 11-year low. The S&P 500 has dropped more than 52 per cent below its October 2007 record, making this the second-biggest bear market on record, exceeded only by the 83 per cent drop between 1930 and 1932.

"$50 was a psychological support level," Rigby said. "Since we haven't traded this low for so long, it's hard to find a new support level."

The Organization of Petroleum Exporting Countries, which accounts for about 40 per cent of global supply, may cut production before its next official meeting on Dec. 17, Rigby said. OPEC President Chakib Khelil has signaled the group may announce output reductions at the meeting, but some members, such as Iran, have called for earlier cuts.

OPEC lowered production quotas by 1.5 million barrels a day last month.

"Their revenues are dropping so much, I think OPEC will have to call an extraordinary meeting and cut quotas to try to support the market," Rigby said. "Their last cut had zero impact on the market."

In other Nymex trading, gasoline futures rose 1.89 cent to $1.03 a gallon. Heating oil gained 1.91 cents to $1.69 a gallon while natural gas for December delivery slid 5.9 cents to $6.26 per 1,000 cubic feet.

In London, December Brent crude fell 68 cents to $47.40 on the ICE Futures exchange.