Oil Rebounds From Sharp Fall In Previous Session

By: AP
By: AP

Oil prices rebounded to above $36 a barrel Friday as key OPEC members were seen complying with promised output cuts, but investors were still braced for more signs that the global economic slowdown deepened in the fourth quarter.

By midday in Europe, light, sweet crude for February delivery was up $1.21 to $36.56 a barrel in electronic trading on the New York Mercantile Exchange. The contract on Wednesday fell $3.63 to settle at $35.35. Trading was closed Thursday for Christmas.

In London, February Brent crude rose $1.09 to $37.70 a barrel on the ICE Futures exchange.

While OPEC production cuts announced in the past few months had failed to stop prices from falling, last week's decision to slash production by 2.2 million barrels a day, the largest OPEC cutback ever, finally seemed to be having a bullish effect on prices.

The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global supply, had already decided on a cut of 1.5 million barrels a day in November, but doubts about the will of some members to carry out the quota reductions had helped neutralize its influence on the market.

"For now, at least Saudi Arabia and the United Arab Emirates seem to be fully complying with the cuts," said analyst Olivier Jakob of Petromatrix in Switzerland.

OPEC President Chakib Khelil said earlier this week the group may meet in Kuwait City on Jan. 19 to discuss further production cuts. The group's next official meeting is March 15 in Vienna.

Despite Friday's advance in prices, investors' mood was far from buoyant as the economic recession coupled with falling demand for crude continued to weigh on markets.

"All the economic figures are pointing to demand destruction, and that's not going to change soon," said Christoffer Moltke-Leth, head of sales trading for Saxo Capital Markets in Singapore. "There seems to be no end to the bad news from economic data."

Investors eyed more evidence that plummeting consumer demand from the U.S. and Europe is undermining growth in export-dependent Asia, as production at major Japanese manufacturers fell by its largest margin ever in November.

Japanese industrial production fell 8.1 percent in November from a month earlier, the largest drop since the government began measuring such data in 1953, the Ministry of Economy, Trade and Industry said Friday.

The decline followed a 3.1 percent drop in October, and the government expects another 8 percent plunge in December.

"These are pretty ugly figures that show the recession deepened in Japan," Moltke-Leth said. "I don't see any catalyst to bring crude higher. We'll likely test $30."

Many companies will likely report dismal earnings for the fourth quarter and may use the lowered expectations to include massive writedowns or one-time charges, Moltke-Leth said.

"I think a lot of CEOs want to put everything bad into the fourth quarter because the market expects it to be bad so why not put everything you can in there," he said. "There's going to be a lot of bad corporate news during the next few weeks, and that's going to reinforce the demand destruction theme for crude."

In other Nymex trading, gasoline futures were steady at 79 cents a gallon. Heating oil gained 3.87 cents to $1.2370 a gallon while natural gas for January delivery rose 1.8 cents to $5.928 per 1,000 cubic feet.

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Associated Press writer Alex Kennedy in Singapore contributed to this report.

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