Oil prices rebound in Asia after steep overnight drop

Oil prices rebound in Asia after steep overnight drop

Singapore: Oil prices rebounded modestly in Asian trading Wednesday as traders bought contracts after they dropped sharply in the previous session.

Crude prices had declined sharply after the International Energy Agency cut its demand forecasts and said Tuesday that crude supplies are rising.

“Essentially, what the IEA indicated was that high crude prices were weighing down on oil demand," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. “The news is seen as bearish for the market."

The IEA, an energy policy advisor to 26 predominantly Western industrialized nations, lowered its fourth-quarter oil demand forecasts by 500,000 barrels a day, and cut its demand forecasts for 2008 by 300,000 barrels a day. Year-over-year demand growth will now average 1.2% in 2007 and 2.3% in 2008, the IEA said.

At the same time, global oil supplies grew by 1.4 million barrels a day in October due to increases in OPEC supplies and production in China, Azerbaijan and Russia, the IEA said. The Organization of Petroleum Exporting Countries boosted output by 410,000 barrels a day in October, the IEA said.

Light, sweet crude for December delivery rose 28 cents to $91.45 a barrel in Asian electronic trading on the New York Mercantile Exchange, midmorning in Singapore.

On Tuesday, the contract fell $3.45 to settle at $91.17 a barrel.

Only last Thursday, crude prices rose to an intraday record of $98.62 a barrel and appeared headed for US$100, driven by a mixture of concerns about falling domestic supplies and rising demand, the threat of disruptions to the oil flow from the Middle East and actual breaks in production from Nigeria.

But analysts have long theorized that oil was also lifted by speculative buying incited by the dollar’s long decline. And while some of the market’s fundamental concerns seemed to be ebbing Tuesday, some of the selling was likely due in part to a reversal of those speculative bets.

Whether Tuesday’s sharp decline marks the beginning of the end of an oil bubble remains to be seen. Analysts say investors who still believe oil will rise above $100 will swoop in to “buy the dips" whenever oil prices fall.

“We have not seen high pricing substantially change supply or demand. We actually need large changes in either supply or demand to really cause a significant retreat or surge in pricing," Shum said.

“Because the factors that drove pricing to record highs have not changed, it is therefore likely that the crude market will make another run toward $100."

Traders were awaiting the Energy Information Administration’s weekly inventory report, delayed until Thursday this week due to Monday’s Veteran’s Day holiday.

The report is expected to show that US crude oil inventories fell by 300,000 barrels last week, according to the average estimate of analysts polled by Dow Jones. Gasoline inventories, on average, likely fell 100,000 barrels, while distillate stocks were expected to fall 300,000 barrels. Refinery use likely rose 0.7 percentage point to 86.9% of capacity.

Nymex heating oil futures gained 0.59 cent to $2.508 a gallon (3.8 litres) while gasoline prices rose 0.59 cent to $2.3226 a gallon.

Natural gas futures rose 2.6 cents to $7.975 per 1,000 cubic feet.