Oil rallies after early lows
Oil prices, off by as much as 7 percent earlier in the day, fell $1.70 to settle at $46.28 a barrel on the New York Mercantile Exchange.
By MARK WILLIAMS
The Associated Press
12/12/2008
Oil prices rallied from early lows Friday as the president and the Treasury Department said they were prepared to act if needed to save the U.S. auto industry after a proposed bailout for Detroit Three collapsed.
The price for a barrel of oil, however, finished lower on another round of poor economic news that showed consumers cutting back on spending for a record fifth straight month.
Crude's wild swings Friday capped a volatile week in which prices surged on the back of a weakening dollar, and also the potential for severe production cuts from OPEC.
"We are being torn in a lot of different directions," said Phil Flynn, an analyst at Alaron Trading Corp.
Oil prices, off by as much as 7 percent earlier in the day, fell $1.70 to settle at $46.28 a barrel on the New York Mercantile Exchange.
In London, January Brent crude fell 75 cents to $46.64 a barrel on the ICE Futures exchange.
A day after the dollar got crushed on the possibility of a bailout and sent oil prices 10 percent higher Thursday, the market seemed more worried about weak demand on Friday after bailout of the automakers failed, Flynn said.
General Motors Corp., Chrysler LLC and Ford Motor Co. failed to secure $14 billion in emergency loans after efforts collapsed in the Senate late Thursday. The Senate rejected the bailout 52-35 on a procedural vote.
Crude seemed to gain some support and the stock market, which had been off about 200 points, rallied as President George W. Bush and the Treasury Department said Friday they were prepared to act to keep the automakers from failing.
"This is a market that is trading on any headline out there," oil analyst Stephen Schork said.
Most industry experts dismissed soaring crude prices this week as an aberration. Before a sell-off Friday, crude had risen 7 percent this week despite a stream of dour economic reports and predictions of falling demand.
Schork said in his report Friday that "when you get a market that is oversold, which was the case for crude oil heading into this week, you get large, seemingly unexplainable spikes in the market. This is what we think we are witnessing this week. Therefore, we will stick to our guns and will maintain our bearish bias."
Economic data released Friday suggested the worst recession in a generation has tightened its grip on the nation.
Retail sales dropped by 1.8 percent last month. It was the fifth straight decline, a stretch of weakness never before seen on the government's retail sales records.
Wholesale prices plummeted 2.2 percent in November as prices for gasoline and other kinds of energy fell. It was the fourth straight monthly decline.
And businesses, facing a record drop in sales, reduced inventories in October by the largest amount in five years, another sign the recession likely will force further cuts in production.
The Commerce Department says businesses slashed inventories they were holding on shelves and back lots by 0.6 percent in October, three times the 0.2 percent decline economists expected. It was the biggest cut in inventories since August 2003.
Flynn said the up-and-down trading this week was similar to what happened in October when oil markets tried to keep a $60 price on oil.
The difference now is that the Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global crude supply, and Russia, another major oil producer, are threatening production cuts to keep prices above $40, Flynn said.
Oil producing nations were shocked when oil fell to $40.50 exactly one week ago.
Many analysts expect a production cut of as much as 2 million barrels a day, which would match the combined reductions of two previous output cuts earlier this year, when OPEC meet Dec. 17 in Algeria.
Flynn said OPEC and Russia seem to be pulling out all the stop to support prices.
"If this doesn't work, they're destined to the market forces like everyone else," he said.
Prices at the pump fell again overnight, dropping 0.8 cents to a national average of $1.656 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express. That's 54.6 cents a gallon below what it was a month ago and $1.329 below where it was a year ago.
The lower prices at the pump have so far not put more motorists back behind the wheel.
Americans drove 3.5 percent less, or 8.9 billion fewer miles, in October compared with October 2007, the sharpest decline of any October since 1971, according to the U.S. Department of Transportation.
Americans drove more than 100 billion fewer miles between November 2007 and October than the same period a year earlier, according to the U.S. Department of Transportation.
In other Nymex trading, gasoline futures fell 1.7 cents to $1.0617 a gallon. Heating oil dipped a penny to $1.4961 a gallon and natural gas for January delivery lost 9.6 cents to $5.502 per 1,000 cubic feet.
Associated Press writers Pablo Gorondi in Budapest, Hungary, and Eileen Ng in Kuala Lumpur, Malaysia, contributed to this report.
The Trucker staff can be reached to comment on this article at editor@thetrucker.com.