Oil rebounds above $66 after tumbling 4.5%

Oil rebounds above $66 after tumbling 4.5%

Perth: Oil rebounded above $66 a barrel on Friday, after a drop of more than 4% to its lowest in eight weeks as weak US home sales stoked doubts about the pace of a fuel demand recovery in the world’s top energy consumer.

Spooked by government data showing a large build in US crude oil stockpiles earlier in the week, oil prices are on track to snap two straight weeks of gains and post a drop of nearly 8% this week, making their worst weekly performance in about two months.

US crude for November delivery was up 18 cents at $66.05 a barrel by 0700 GMT, after settling down $3.08 on Thursday.

London Brent crude gained 29 cents to $65.44.

Analysts said oil’s gain on Friday was largely a technical rebound, with demand and supply fundamentals still weak and showing little sign of improvement.

“There is a strong technical resistance at around the $65 level and prices are bouncing back now because the market still believes that prices will start rising towards the $75 level, when US crude stocks come down in the fourth quarter," said Tony Nunan, an analyst at Mitsubishi Corp in Tokyo.

Financial and consumer-related shares rose in Asia and the US dollar turned lower on Friday as G20 leaders pledged in a draft statement to keep some stimulus supports in place until a recovery is clearer.

Crude prices tumbled 4.5% on Thursday as traders shrugged off a positive report of a fall in the number of US workers filing for jobless benefits claims, and focused instead on poor US home sales data that fell unexpectedly in August for the first time in four months, indicating a less vigorous pace of economic recovery from a deep recession.

Additional pressure came from a report that Opec seaborne oil exports, excluding Angola and Ecuador, will rise 160,000 barrels per day in the four weeks to 10 October.

In a sign that Asian demand would continue to stay listless in the near term, Japan Energy Corp, the nation’s sixth-largest oil refiner, said on Friday it planned to cut its crude oil processing volumes for Oct-Dec by 11% from the same period a year earlier due to slow domestic demand.

Japan’s third-biggest refiner, Idemitsu Kosan Co, said it shut a 60,000-barrel-per-day fuel oil desulphurisation unit at its Aichi refinery in western Japan on Thursday after a fire.

Oil has traded in a wide band of between $65-$75 in the past month and most analysts agree that prices would only break out of the $75 range when the supply glut in the U.S. -- where oil stockpiles are around 9% above its five-year average levels -- starts to ease.

“Gradually improving demand conditions amid continued supply tightness should accelerate the pace of erosion of the currently large inventory overhang, thereby starting to provide the momentum required to break to the upside of the current trading range," Barclays Bank said in a research note.

Hugoi Chavez, president of Opec nation Venezuela said on Thursday he expected oil prices to stabilise at a level of at least $80 a barrel by early next year.

Economic data on tap for Friday includes US durable goods orders for August, Reuters and University of Michigan consumer sentiment for September and US new home sales data for August.