Oil up strong on recovery hopes and supply/demand balanceGregory...

Oil up strong on recovery hopes and supply/demand balance


Gregory Meyer | April 03, 2009
Article from: Dow Jones Newswires
OIL zoomed back above $US50 a barrel in New York as traders responded to hopes demand will firm up if the world economy does.

Light, sweet crude for May delivery settled at $US52.64, up $US4.25 or 8.8 per cent, a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures exchange settled $US4.31 higher at $US52.75 a barrel.

The Nymex close was the highest in a week.

Oil started the session strongly in sympathy with rising world stock markets and was further fuelled by optimism arising from the G20 nations' agreement to raise the International Monetary Fund's lending powers by more than $US1 trillion ($1.4 trillion).

"We came in this morning and stock markets were around the world were up. The US dollar was a little bit weaker. Equity markets were up. I think there's a growing consensus the economy and the stock market has seen its worst," said Chris Mennis, president of New Wave Energy, a brokerage in Aptos, California.

KEY COMMODITY PRICES: oil, gold, base metals, livestock and wheat

The Dow Jones Industrial Average rose sharply on better-than-expected data on factory orders and a move to relax mark-to-market accounting rules that benefited banks. The US dollar declined against the euro, which was about $US1.34, from $US1.32 late in the previous session, giving investors incentive to pile into oil as a currency hedge.

Oil's rebound came amid new signs supply is more in line with demand that's been pinched by the economic slowdown. The Organisation of Petroleum Exporting Countries has announced production cuts totalling 4.2 million barrels a day since September.

Oil Movements, a firm that tracks tanker traffic, said oil exports from the 10 major OPEC members it watches will in April likely fall by nearly a million barrels a day to 22.15 million barrels a day, the lowest levels in nearly six years.

Roy Mason, head of Oil Movements, said the numbers pointed to 80 per cent compliance to agreed OPEC cuts. A separate Dow Jones Newswires survey indicated OPEC last month was 83 per cent compliant with its announced reductions, an improvement on the month earlier.

"We think the oil market is pretty much in balance at this precise moment," said Lawrence Eagles, commodity research head at JPMorgan. "Although we've seen quite a dramatic downward shift in demand, we've also seen quite a dramatic shift in OPEC supply cuts."

The International Energy Agency expects world demand to decline for the second straight year in 2009, by 1.2 million barrels a day or 1.5 per cent. IEA chief Nobuo Tanaka warned the agency is likely to make further cuts to its global consumption forecast this year. "More demand (downward) revisions cannot be ruled out," he said at an energy conference in Paris.

At the same event, OPEC secretary general Abdalla Salem el-Badri said the producer group "can live with prices of around $US50 for the time being. The world economy is in very bad condition," and cheaper oil is helping consumers, he said.

OPEC chose not to tinker with output quotas at its last meeting March 15.