Oil prices head towards $US70
October 30th, 2008 - Posted in Energy PricesWORLD oil prices neared $US70 a barrel in Asian trade today, extending gains after a cut in US interest rates powered a rally in global stock markets.
New York’s main contract, light sweet crude for December delivery surged $US2.14 to $US69.64 a a barrel. It had jumped $US4.77 to $US67.50 a barrel at the close of floor trading in New York overnight.
Brent North Sea crude for December climbed $US2.03 to $US67.50 a barrel. It had soared $US5.18 to $US65.47 in London.
Strong rebounds in global stock markets after the US Federal Reserve slashed its key interest rate by another 0.5 percentage points to 1.0 per cent boosted oil prices, analysts said.
The Fed’s expected action came after China also chopped its benchmark one-year deposit rate by 27 basis points to 3.60 per cent in a bid to spur economic growth, and expectations rose for rate cuts in Japan and Europe.
“People are waiting to see the bottom in the equities market and some signs of stabilisation in the US and the world economy,” said Tony Nunan, manager for energy risk at Mitsubishi in Tokyo.
He said a rebound in the stock markets was a good sign some stability was coming back.
Mr Nunan also said investors were realising that the credit crunch resulting from the financial crisis could affect future oil production, which would mean tighter supplies especially with the Opec oil cartel cutting output levels.
Ministers from the Organisation of Petroleum Exporting Countries (Opec) agreed at an emergency meeting in Vienna last week to slash output by 1.5 million barrels a day from November 1 as the cartel seeks to shore up prices.
On Tuesday, Opec Secretary General Abdalla Salem El-Badri warned it could cut output again if prices keep falling. OPEC produces 40 per cent of the world’s crude oil.
“People are coming to realise that Opec is serious about cutting back production,” Mr Nunan said.
The Opec output cuts, along with likely project delays due to the worldwide credit crunch, will affect future oil production and lead to tighter supplies, he said.
Other analysts said data showing that US crude oil reserves rose less than expected and that gasoline stockpiles surprisingly fell in the world’s biggest energy consumer also supported oil prices.
The US Department of Energy said crude oil rose by 500,000 barrels in the week ended October 24, sharply less that market expectations of a 1.6 million barrel increase.
Gasoline stocks fell by 1.5 million barrels, instead of the 1.3 million barrel rise forecast.
