Update: Oil rises to above US$83 as financial panic eases at 1115 hrs

Update: Oil rises to above US$83 as financial panic eases at 1115 hrs


Singapore: Oil prices rose above US$83 a barrel on Tuesday in Asia as panic selling over a global financial crisis eased after the U.S. and Europe pledged to pump capital into ailing banks.

Light, sweet crude for November delivery was up US$2.38 to US$83.57 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract rose overnight $3.49 to settle at $81.19.

Investors have cheered signs that the U.S. and European governments plan to inject capital into major banks. Tokyo’s benchmark Nikkei 225 index jumped 13 percent Tuesday after the Dow Jones industrial average on Monday gained more than 11 percent, its biggest one-day rally since 1933.

“There’s some confidence from Western governments buying stakes in banks, and the financial panic seems to have subsided a little," said Jonathan Kornafel, Asia director for market maker Hudson Capital Energy in Singapore. “Crude oil certainly overshot on the downside."

Oil fell to a 13-month low on Friday, settling at US$77.70. Crude is down 44% since reaching a peak in mid-July.

The U.S. plans to spend an initial $250 billion of a $700 billion bailout buying stock in private banks, industry and government officials said Monday night. President George W. Bush planned to announce the details later Tuesday.

That followed signals that European governments were putting up about $2 trillion to safeguard their own banks.

Although the massive rescue plans boosted short-term sentiment, the scale of the bailout underscores the current weakness of the global financial system and the likelihood of a prolonged economic downturn, Kornafel said.

“I think we’re only seeing the beginning of demand destruction," Kornafel said. “Once the problems in the banking sector are straightened out, we’re going to have to deal with the longer term problem of how this is going to trickle down to the world economy and demand for oil."

Oil prices will likely fluctuate between US$70 and US$90 until the world economy begins to grow again in 2009 or 2010, Kornafel said.

Other analysts are revising down forecasts. Goldman Sachs on Monday cut its year-end crude price forecast from US$115 a barrel to US$70.

In other Nymex trading, heating oil futures rose 3.84 cents to US$2.38 a gallon, while gasoline prices gained 5.29 cents to US$1.97 a gallon. Natural gas for November delivery rose 10.1 cents to US$6.79 per 1,000 cubic feet (28 cubic meters).

In London, November Brent crude rose US$1.92 to US$79.38 a barrel on the ICE Futures exchange.