Oil prices jump in volatile trading

By MARK WILLIAMS
The Associated Press

12/10/2008

COLUMBUS, Ohio — Oil prices jumped amid volatile trading Wednesday as a government report showed U.S. crude inventories were much slimmer than expected.

Contrasting smaller crude inventories, the Energy Department’s Energy Information Administration said in the same report that gasoline inventories were well above expectations.

Light, sweet crude for January delivery rose more than 8 percent, or $3.50, to $45.57 a barrel on the New York Mercantile Exchange.

“This market just overextended itself on the short side,” said oil trader and analyst Stephen Schork. “They are not buying because of the Department of Energy report. In a rational world, they’d be selling.”

After hitting $40.50 a barrel last week, some oil traders believe that if the market has not bottomed out, it is close do doing so.

For the week ended Friday crude inventories rose by 400,000 barrels, or 0.1 percent, to 320.8 million barrels, which is 7.7 percent above year-ago levels, the EIA said in its weekly report.

Analysts had expected a boost of 2.7 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

Yet demand for gasoline over the four weeks ended Friday was 3.2 percent lower than a year earlier, averaging 8.9 million barrels a day.

“By and large this report shows we’ve got a lot more product out there than most people thought we did,” said Jim Ritterbusch, president of Ritterbusch and Associates. “This is just one more indication of a weak demand environment.”

Oil prices have held up this week after declining by about 25 percent last week, but Ritterbusch believes they are headed lower.

“I simply think this is a pause in a down market,” he said.

All eyes are now turning to Algeria, where OPEC meets next week.

The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global crude supply, has signaled it plans to reduce output quotas.

A growing number of analysts now expect production cuts of as much as 2 million barrels a day, which would match the combined reductions of two previous output cuts earlier this year.

Russian Energy Minister Sergey Shmatko said Wednesday that Russia wants trying to coordinate with other non-OPEC producers and will soon make an announcement of its intentions with OPEC.

That has been met with some skepticism by analysts, and production cuts have failed to halt crude’s slide to date.

“I view OPEC as almost powerless right now,” Ritterbusch said.

Demand for energy has evaporated amid a recession that only appears to be spreading, and by most indications OPEC’s ability to bolster prices has been greatly diminished.

China said Wednesday that exports in November fell 2.2 percent from a year ago, the first decline in seven years as consumer demand around the world has plunged. That was down sharply from October’s export growth of 19.1 percent and well below analysts’ forecasts of a 13 percent to 15 percent rise. Imports fell by 17.9 percent, pushing China’s trade surplus to a new high of $40.1 billion.

In the U.S., wholesalers cut back on their inventories in October by the largest amount since the period following the 2001 terrorist attacks while they watched their sales plunge by a record amount. Analysts predict more grim news in the months ahead as the current recession deepens.

The Commerce Department reported Wednesday that wholesalers, the companies in the supply chain between manufacturers and retailers, reduced their inventories by 1.1 percent in October.

The World Bank on Wednesday cut its real gross domestic product growth outlook in East Asia to 5.3 percent in 2009 from an expected 7.0 percent this year. The bank blamed falling exports and slowing business investment.

Vikram Nehru, the World Bank’s chief economist for East Asia and the Pacific, warned that with conditions changing so quickly, the outlook for the region could easily worsen.

“We are frankly in unknown territory at this stage,” Nehru said.

Oil prices have fallen about 70 percent since peaking at $147.27 in July as demand, rather than supply, becomes the driving factor in crude markets.

Prices at the pump continued to slide, falling 1.5 cents overnight to a national average of $1.683 per gallon, according to auto club AAA, the Oil Price Information Service and Wright Express. That’s 55.7 cents a gallon below what it was a month ago and $1.312 below where it was a year ago.

In other Nymex trading, gasoline futures rose 5.8 cents to 99.5 cents a gallon. Heating oil gained 2.36 cents to $1.46 a gallon while natural gas for January delivery jumped 9.8 cents to $5.677 per 1,000 cubic feet.

In London, January Brent crude rose $2.59 cents to $44.12 on the ICE Futures exchange.

Associated Press writers George Jahn in Vienna, Austria, Tomoko A. Hosaka in Tokoyo, Alex Kennedy in Singapore and Martin Crutsinger in Washington contributed to this report.

Dorothy Cox of The Trucker staff can be reached for comment at dlcox@thetrucker.com.