Oil climbs $3 after dive, Europe moves raise hope

Oil climbs $3 after dive, Europe moves raise hope

Perth: Oil climbed more than $3 on Monday, recouping part of Friday’s 10% dive as European leaders took bolder steps to pull the banking sector out of crisis.

Countries from Europe to Australia rushed out plans on Sunday to shore up their banks, trying to stem a crash in markets, while investment bank Goldman Sachs said the financial crisis had already done more damage than it expected to commodity demand, forcing it to dramatically cut price targets.

US crude for November delivery rose $2.95 to $80.65 a barrel amid cautious enthusiasm over the latest efforts to stave off a global recession. News of capital raising by Barclays Capital and Royal Bank of Scotland also helped.

Prices plunged nearly $9 on Friday to their lowest since 10 September, 2007, having dumped 17% over last week, the biggest one-week loss since the 2003 war in Iraq.

London Brent crude rose $2.36 to $76.45 a barrel.

“The announcements from over the weekend would have some positive effects on the markets, even though it’s still in very early days at this stage to say if they would put an end to the financial crisis," said David Moore, a commodities analyst at the Commonwealth Bank of Australia.

In Europe, government leaders agreed on commitments to provide capital for banks caught short of funds because of frozen money markets and to insure or buy into new debt issues, the latest in a series of bold measures.

The US Federal Reserve will consider all options in seeking to stabilise credit markets in a period that may bring negative growth, Dallas Fed President Richard Fisher said.

The news lifted Asian stock markets and US stock futures on Sunday after they had plunged more than 18% last week in their worst-ever weekly fall as panicked investors dumped stocks on fears the economy was headed irreversibly into recession.

Slumping demand in the United States and other developed economies have sent oil prices off their July peak of above $147 a barrel, reached after surging consumption in emerging markets such as China sent commodities on a six-year rally.

Goldman turns near-term bear

Goldman Sachs, once one of the foremost bulls on commodities, turned a near-term bear on Monday after conceding that global financial turmoil would take a far bigger toll on demand, warning that $50 oil was possible if the crisis deepened.

“We have underestimated the depth and duration of the global financial crisis and its implications on economic growth and commodity demand," its commodity markets research team said.

The bank cut its year-end US crude oil target to $70 a barrel, down from a previous forecast of $115 a barrel, and slashed its average 2009 forecast by a third to $86 a barrel.

The price fall has caused some Opec members to call for a cut in production levels, and the cartel has agreed to hold an emergency meeting in Vienna on 18 November to discuss the impact of the global financial crisis on the oil market.

Iran is set to push for a cut in oil output at an Opec emergency meeting in November, its oil minister said in comments published on Sunday, adding investment conditions in the oil industry would be severely hit unless Opec acted decisively to arrest the current fall in oil prices.

But Saudi Arabia, the world’s biggest exporter and Opec’s most influential member, has shown no signs of taking pre-emptive action to stem the slide in prices, telling major Asian refiners that it will maintain crude oil shipments unchanged next month, according to notices sent to refiners.