Oil broke out of a week long slump on Friday, jumping 13% at one stage in a surprising upsurge of activity.
Some traders claimed the market was merely covering for the long Presidents’ Day weekend with markets closed tonight, our time.
Other traders said some responded to the belief that the oversupply of crude would force OPEC to again cut output sooner rather than later.
And OPEC official warned over the weekend that oil priced under $US40 a barrel, would bring another cut in output.
Prices bounced after dipping under $US34 a barrel late in the week. That was at the end of a seven day slide.
Light, sweet crude for March delivery rose $US3.72, to $US37.70 a barrel on the Nymex (the New York Mercantile Exchange). Prices hit a high of $US38.25 in afternoon trading, Friday night, our time.
After opening above $US42 a barrel on Monday, crude prices fell every day as traders showed little optimism that a $US790 billion ($A1.21 trillion) stimulus package and the Treasury Department’s plan to spend more than $US1 trillion ($A1.53 trillion) to help remove banks’ toxic assets from their balance sheets would slow the slide and see economic growth resume.
Prices on Thursday closed at their lowest level of the year at $US33.98 a barrel, and appeared headed back toward the January and February contract lows of $US32.48 and $US32.70 as US stockpiles again rose.
The US Energy Information Administration said on Wednesday that crude inventories for the week ended February 6 jumped 4.7 million barrels to 350.8 million barrels, surpassing all forecasts US oil stocks, including the main depot in Cushing, Oklahoma, are full with crude, reflecting the drop-off in demand.
That’s normally been a depressant as oil held at Cushing is used to satisfy deliveries on Nymex. Oil traders store crude there they can’t unload or are forced to hold because they can’t unwind futures contracts.
US traders said the price rises flowed by short covering by traders ahead of the long weekend, but the rise was much larger than we have seen in recent months ahead of holiday periods. It was as though traders awakened together from a bit of a snooze and plunged into the market regardless of any fundamentals, then realised what they had done.
The Energy Information Administration said last week that:
"U.S. real gross domestic product (GDP) is expected to decline by 2.7 percent in 2009, triggering decreases in domestic energy consumption for all major fuels.
"Economic recovery is projected to begin in 2010, with 2.2 percent year-over-year growth in GDP. Accompanying the projected economic recovery should be a mild rebound in energy consumption for all the major fuels in 2010.
"Over the past 6 months, the monthly average price of West Texas Intermediate (WTI) crude oil fell from $133 per barrel in July to $41 in December and January. WTI prices are projected to average $43 per barrel in 2009 and $55 in 2010, unchanged from last month’s Outlook.
"The U.S. price for regular gasoline averaged $1.69 per gallon in December 2008, the lowest monthly average since February 2004 and down nearly $2.40 per gallon from the monthly peak seen last July.
"Gasoline prices have been slowly increasing over the last 6 weeks as crude oil prices have stabilized and refiner margins have recovered from their recent near-historic lows.
"Retail gasoline prices are projected to average $1.95 per gallon in 2009 and $2.19 per gallon in 2010."
"The worsening global economy and a weak oil consumption outlook are keeping the world oil market well supplied, despite two downward revisions in production targets by the Organization of the Petroleum Exporting Countries (OPEC) within the past few months.
"Lower global oil demand and rising surplus production capacity through at least mid-year 2009 reduce the possibility for a strong and sustained rebound in oil prices over that period.
"OPEC is scheduled to meet in Vienna on March 15, which could lead to another production cut to mitigate some of the slack in the world oil market. However, near-month oil prices will likely be driven primarily by the global economy.
"Global real gross domestic product (GDP, weighted according to shares of world oil consumption) is assumed to decline by 0.1 percent in 2009 and rise by 3.0 percent in 2010, versus last month’s assessment of 0.6-percent growth in real GDP in 2009 and 3.0-percent growth in 2010.
"World oil consumption is projected to fall by 1.2 million barrels per day (bbl/d) in 2009, representing an additional decline of 400,000 bbl/d from last month’s Outlook.
“World oil consumption is expected to rebound in 2010, growing by more than 1.2 million bbl/d, due to an expected recovery in the global economy.
"Oil consumption growth over the next 2 years is concentrated in countries outside of the Organization for Economic Cooperation and Development (OECD), particularly China, the Middle East, and Latin America, offsetting projected declines in OECD oil consumption (World Oil Consumption).
"If the world economy recovers sooner than EIA now anticipates, oil consumption could be higher than expected, putting upward pressure on oil prices," the EIA said.
Figures out Friday showed eurozone growth contracted by 1.5% in the December quarter, with German economic growth shrinking by 2.1%, faster than any other major European economy.
The drop in output from third to fourth quarter was the biggest since the euro was created in 1999 and the third consecutive quarterly decline.
Analysts said the blame can be put squarely at the feet of waning trade volumes, hurt by slumping demand and a relatively strong euro that makes exports more expensive.
The European car manufacturers’ association ACE
