Oil steadies above $36 after 4-year low

Oil steadies above $36 after 4-year low

Singapore: Oil held above $36 on Friday, after falling more than 20% this week to its lowest since June 2004 as Opec’s record supply cut failed to put a floor under prices, instead being viewed as another sign of slumping demand.

Oil is now more than $110 off its July peak, having shed a third of its value just this month as a global recession cuts into fuel use.

US light crude for January delivery, which expires later on Friday, rose 3 cents to $36.25 a barrel at 6:50am, after falling on Thursday to $35.98, the first time below $36 a barrel since late June 2004.

Months further out along the curve have dropped less than the front-month contract, with crude for February delivery 44 cents higher at $42.11, an almost $6 contango that is the highest on record.

London Brent crude for February delivery was untraded at the same time after closing at $43.36 on Thursday.

“Until traders see a sustained drop-off in the rate of demand destruction, the market will have a hard time establishing a floor. We expect the market to level off in the high 20’s before beginning a push back towards $50, sometime in the late second, early third quarter," said Jonathan Kornafel, Asia Director of Hudson Capital Energy.

“From a credibility standpoint, Opec has no choice but to bite the bullet for the next few months."

Asian refiners were still waiting to hear of any cuts to their allocations for January, with four North-Asian end-users telling Reuters on Friday they had not yet had any notices.

Analysts doubted the producer cartel, whose third production cut since September brought its total reduction to over 4 million bpd or 5% of world supply, would fully implement the agreed cuts, further weighing on prices.

The economic outlook for next year is increasingly bleak. Top forecasters are now predicting the first decline in world energy use since 1983, and economic indicators show a deep global recession taking hold.

Deutsche Bank forecast oil demand will drop 1.2% in 2009, more bearish than predictions from the US Energy Information Administration.

JP Morgan cut its 2009 crude oil price forecast to $43 a barrel from $69 previously, while Goldman Sachs reiterated it expected oil to average $30 a barrel in the first three months of 2009.

No. 2 energy consumer China on Thursday announced it would cut domestic fuel prices on Friday for the first time in almost two years to revamp its regulated pricing regime and revive growth.

The cuts of roughly 14% for gasoline and 18% for diesel could stimulate demand, analysts said.