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Oil jumps 4% after hitting 4-year low

Oil jumps 4% after hitting 4-year low
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First Published: Mon, Dec 08 2008. 08 46 AM IST
Updated: Mon, Dec 08 2008. 08 46 AM IST
Tokyo: Oil jumped 4% to above $42 on Monday, clawing back a share of the near-record decline last week when negative economic data heightened fears about the impact of a global recession on fuel demand.
With few signs of immediate economic improvement, traders said the best chances for a rebound in oil prices more than $100 off their peaks rested with a US auto sector bailout and next week’s Opec meeting in Algeria.
US crude for January delivery rose $1.59 to $42.40 a barrel by 7:35am, after closing on Friday at $40.81, the lowest settlement since 10 December, 2004. Oil shed a quarter of its value last week, the sharpest weekly fall since January 1991.
London Brent crude rose $1.71 to $41.45 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 3-4% 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, traders said.
“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. Ltd.
In the week to 2 December, just as prices had begun the latest leg down, crude oil market speculators pared their tiny net long positions marginally, data showed on Friday.
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.
Just five months after oil hit a high of over $147, analysts are now slashing their price and demand forecasts.
Merrill Lynch said oil could drop to $25 a barrel if the global recession extends to China, while the International Energy Agency cut its forecast for average annual oil demand growth to 2013 to 1.2% from 1.6%.
The rapid, steep retracement of oil prices has prompted many Opec members to call for increasingly strong action when the cartel meets on 17 December in Algeria.
Opec has already agreed to cut about 2 million barrels per day (bpd) of production, although not all members appear to be contributing their share of the cut-backs.
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First Published: Mon, Dec 08 2008. 08 46 AM IST
More Topics: Markets | Oil | US | Ecoomy | Opec |