Oil falls below $46 as Wall Street gives up gains
Jan 26th, 2009 | By Oil and Gas | Category: Latest News
Oil prices fell Monday as investors weighed early gains in the equity markets against signs of a deepening recession that could further eat away at energy demand.
Light, sweet crude for March delivery fell 74 cents to settle at $45.73 on the New York Mercantile Exchange, thouch prices fluctuated throughout the day.
Michael Lynch, president of Strategic Energy & Economic Research, said the market is in a sort of shoulder period in which dour economic news continues to emerge and investors haven’t yet seen the effects of the OPEC production cuts.
“You’ve got countervailing forces pulling people in both directions,” Lynch said. “People are sort of jumping in and out accordingly.”
Oil prices hit a low of $45.25 before swinging as high as $48.59 during a volatile trading delay.
Analyst Jim Ritterbusch said traders earlier in the day seemed to be focusing on a 100-point jump in the Dow Jones industrial average and a significant weakening in the U.S. dollar. The Dow later gave up most of its gains, closing up 38 at 8,116.
“These are factors that tend to push some speculative buying interest into the long side,” said Ritterbusch, president of energy consultancy Ritterbusch and Associates.
Monday’s oil price swings come after it gained $2.80 on Friday to settle at $46.47, confounding some market experts by seemingly ignoring the fundamentals of high supply and low demand.
“From a logical point of view, there is no reason for spot Nymex crude oil to trade above $40,” analyst and trader Stephen Schork wrote in his daily publication, The Schork Report. “OPEC is cutting production because no one is buying their oil. And, given the dire global economic outlook … that is not about to change.”
Ritterbusch said the demand deterioration is live and well, but the market is moving more into a sideways trade with near-term prices likely swinging between the mid-$30 range on the down side and the mid-$50 to low-$60 range on the high side.
Investors will be looking to U.S. earnings results this week for signs of the economy’s health. Hundreds of companies will issue reports including Procter & Gamble Co., Kimberly-Clark Corp. and Starbucks Corp.
Crude investors often use equity markets as a gauge of sentiment about the economy. Oil has fallen about 69 percent since peaking at $147.27 a barrel in July, joining a steep decline in stock markets around the world.
The U.S. economy, the world’s largest consumer of crude, will “get worse before it gets better,” Vice President Joe Biden said Sunday.
Congress is working on an $825 billion plan — about two-thirds new government spending and the rest tax cuts — that proponents expect will create as many as 4 million jobs.
Oil-rich Norway on Monday announced a $2.9 billion stimulus package of tax cuts and increased spending in an attempt to dampen the impact of the global financial crisis.
Norway has put aside more than $286 billion in a fund invested abroad to avoid overheating the country’s economy. However, the government can used more oil wealth in Norway when needed.
Finance Minister Kristin Halvorsen said Norway, a major oil exporter, already expected a downturn after years of strong economic growth fueled by high oil prices.
Ecuador’s state oil company said Friday that it is cutting this year’s budget by 30 percent to $3 billion because of lower oil prices caused by the global economic slump.
Petroecuador had been counting on an average price of $85 a barrel in 2009 — just about last year’s average. Now they are budgeting for $44. The current price for Ecuadoran crude is near $25.
The Organization of Petroleum Exporting Countries has announced 4.2 million barrels a day in production cuts since September, though investors have largely brushed them off.
(Extract from news.yahoo.com)
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