Oil pauses near $80 after 3% rally

Oil pauses near $80 after 3% rally
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First Published: Fri, Oct 30 2009. 03 26 PM IST
Updated: Fri, Oct 30 2009. 03 26 PM IST
London: Oil prices hovered below $80 a barrel on Friday following a 3% jump the previous day as doubts that oil prices may have run ahead of supply and demand fundamentals tempered the rally.
Oil prices jumped on Thursday, while US stocks logged their best one-day percentage gain in three months, as investors saw data showing the US economy returned to growth in the third quarter as brightening the outlook for profits and oil demand.
The world’s largest economy grew at an annualised rate of 3.5% in the July-September period, beating forecasts of a 3.3% rise and ending a deep slump.
US crude for December delivery fell 31 cents to $79.51 a barrel by 1015 GMT, after trading above the key $80 a barrel level in early trade. London Brent crude slipped 40 cents to $77.60.
Thursday’s sharp rise crowned October gains, setting crude on course for a 13% rise this month, after a broadly positive corporate earnings season prompted many investors to bet on further oil price rises.
“With the fervent mood sweeping oil markets on Thursday the F word - fundamentals - still seems to be far from many minds,” said JBC Energy analyst David Wech.
A more sage assessment of supply and demand fundamentals was likely to trigger a price correction, he added.
“Oil still looks to be overpriced and an increase in GDP after four quarters of decreases does not mean the United States, or the rest of the world, is out of the woods.”
Brimming Inventories
Exxon Mobil Corp, Royal Dutch Shell Plc and Eni SpA dashed hopes for an imminent turnaround for the oil industry on Thursday, saying sluggish economic recovery was weighing on energy demand and prices.
Bearish comments from the trio followed data on Wednesday showing a surprise build in US gasoline inventories.
Global oil product stocks stored at sea are also brimming, with floating storage estimates near 80 million barrels.
Analysts said traders were awaiting more economic data on Friday to gauge if the pace of recovery in the US is sustainable.
Friday’s data includes the University of Michigan consumer sentiment survey for October and the Institute of Supply Management Chicago’s October index for manufacturing activity.
This could give the US dollar a steer, analysts said, after it inched higher versus the euro on Friday.
Oil prices tend to fall when the dollar rises as it makes the dollar-denominated commodity more expensive for holders of other currencies.
“Markets should come around to the likely conclusion that the dollar should strengthen going forward in the wake of reviving US growth,” said MF Global analyst Edward Meir in a research note.
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First Published: Fri, Oct 30 2009. 03 26 PM IST
More Topics: Markets | Oil | US | GDP | Crude |