Crude Steady, Economy Remains in Focus
LONDON (Dow Jones Newswires), Feb. 16, 2009
Crude prices were largely unchanged in European trade Monday as economy concerns continued to dominate moves and as a U.S. holiday promised to keep liquidity thin.
Optimism surrounding the passage of a U.S. economic stimulus package provided some support for prices, but a reminder of the tough economic conditions currently sapping both sentiment and demand for crude came from Tokyo Monday, where data revealed that the Japanese economy shrank at its sharpest pace in more than three decades in the final quarter of 2008.
Nymex March crude briefly traded back over $38 a barrel Monday, extending last Friday's short-covering inspired rally, but with European equities also proving a headwind to gains, prices remain trapped inside recent ranges.
"On the downside, something of a floor is forming in the low $30-$35 range, basis the nearby crude contract," said Edward Meir, analyst at MF Global in New York.
While production cuts from the Organization of Petroleum Exporting Countries were helping to prop up prices, any rallies above $50 look vulnerable, he added, "given the deteriorating global macro backdrop."
At 1154 GMT, the front-month April Brent contract on London's ICE futures exchange was down 7 cents at $44.74 a barrel.
The front-month March light, sweet, crude contract on the New York Mercantile Exchange was trading 16 cents higher at $37.67 a barrel.
The ICE's gasoil contract for March delivery was down $2.25 at $408.50 a metric ton, while Nymex gasoline for March delivery was up 39 points at 121.02 cents a gallon.
U.S. President Barack Obama is expected to sign a $787 billion economic stimulus bill Tuesday which, allied with similar efforts elsewhere as well as more evidence of OPEC output cuts, could contribute to higher oil prices towards the end of the year, some said.
"Combined with an economy reaching a bottoming in the third quarter, we can expect a recovery in the price of oil. The simultaneous monetary and fiscal push (U.S. and Chinese infrastructure spending) will also be supportive of higher prices," BNP Paribas analysts, led by Harry Tchilinguirian, said in a note. They forecast Nymex crude prices to average $70 a barrel in the fourth quarter.
Nonetheless, pessimism surrounding the global economy has largely blunted the impact of OPEC's production cuts of 4.2 million barrels a day announced since September. The lack of response has nurtured expectations that the group may seek to take further measures to boost prices when it meets again next month in Vienna, particularly after it Friday forecast 2009 global oil demand would be down 600,000 barrels a day on 2008 levels.
The International Energy Agency on Monday urged OPEC nations against cutting output again when it meets March 15 in Vienna.
"If OPEC is aiming at rapid increases by cutting supply, maybe it would not be good for economic recovery. We think OPEC countries should take a closer look at the market and make a flexible decision," IEA chief Nobuo Tanaka told reporters on the sidelines of an energy conference in London Monday.
Tanaka said the IEA currently expects global oil demand to rebound next year, with growth of 1 million barrels a day, or roughly 1%, forecast.
Nymex floor trading is closed Monday for the U.S. Presidents Day holiday, although electronic trading continued. Settlement prices will be issued after the close of floor trading on Tuesday.
Copyright (c) 2009 Dow Jones & Company, Inc.
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