Oil bounced back above $89 a barrel on Monday as traders bet last week’s nearly $10 sell-off was overdone, and might turn the tides against an expected increase in output by the Organisation of the Petroleum Exporting Countries (Opec) when the cartel meets later this week.
United States light, sweet crude for January delivery rose as high as $89,84 a barrel in Globex electronic trading. By 4.12am GMT the contract was up 82 cents at $89,53.
Prices slumped by $9,47 a barrel last week, the biggest nominal weekly loss ever, amid growing expectations of an increase in Opec production, signs of waning health in the US economy and a mild draw in US crude stocks.
But the decline from a record-high closing price of $98,18 on November 23 will also go some way to calming concerns within Opec over the effect of nearly $100 oil on the world economy and crude oil demand.
Ministers meeting in Abu Dhabi this week will weigh a modest boost in oil supplies, but the influential Saudi Oil Minister Ali al-Naimi has avoided any comment on likely steps, repeating only that the market is well supplied although prices are a concern.
Other ministers from Nigeria and Kuwait have said Opec could agree to an output increase if required, while staunch price hawk Venezuela said it saw no need to do so.
A Reuters poll conducted early last week showed analysts expected another 500 000 barrel-per-day (bpd) increase, although some now say that oil’s tumble last week has clouded the picture.
”What Opec will decide on production ceilings is an unknown at present. Our own view is that Opec may announce an increase in production ceilings on a temporary or ‘to be reviewed’ basis,” said Commonwealth Bank of Australia analyst David Moore.
The world’s top exporter convinced others in Opec to agree to a 500 000 bpd increase in September, but for the most part that rise failed to check oil’s rally.
Oil’s surge from below $70 in mid-August was fuelled by the weakening dollar and fears over winter fuel supplies, but last week ran aground as traders focused on signs of economic weakness in the United States, the world’s top energy consumer.
Federal Reserve chairperson Ben Bernanke warned last week that a resurgence in financial strains in recent weeks had dimmed the outlook for the US economy.
Analysts also pointed to rising Gulf Opec flows as the previous output rise took effect from November 1.
”This weakening has occurred as the [market] shifts toward a cyclical softening in oil fundamentals,” Goldman Sachs said, citing increasing Opec supply, weaker refinery demand due to lower margins and growing US and Chinese economic risks.
An explosion that briefly halted the main pipeline delivering Canadian crude to US refiners caused prices to spike on Thursday, but the gains were short-lived as operator Enbridge quickly restored 80% of the throughput.
Enbridge is expected soon to restart the last of four pipelines that were shut following the blast on a Minnesota section of the line, which carries an estimated 1,1=million bpd to US upper Midwest refineries.
In Venezuela, President Hugo Chávez threatened to halt the Opec nation’s oil sales to the United States in an effort to whip up support for a weekend vote on constitutional reform, although he has not followed through on past threats. — Reuters