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Traders look for direction on oil market

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[October 09, 2008]  VIENNA, Austria (AP) -- Oil prices looked for direction Thursday as traders weighed fears that a looming world recession will crimp demand against speculation that OPEC may cut output to keep prices from falling too far.

Venezuelan President Hugo Chavez said Wednesday that some members of the Organization of Petroleum Exporting Countries want an extraordinary meeting before the group's Dec. 17 meeting in Algeria.

OPEC's decision last month to cut production by 520,000 barrels a day failed to halt oil's slide.

"I think OPEC will definitely start to talk the market up," said Gerard Rigby, an energy analyst with Fuel First Consulting in Sydney. "They'll try to keep their members to their quotas. Then if prices fall below $80, they may cut production."

Light, sweet crude for November delivery was up by 28 cents at $89.23 a barrel in electronic trading on the New York Mercantile Exchange by noon in Europe. The contract overnight fell $1.11 to settle at $88.95.

The U.S. Federal Reserve, along with central banks in Europe and China cut interest rates Wednesday in a bid to jump-start lending. But markets in the U.S. and Europe sank in response. The Dow Jones industrial average lost another 2 percent, and the index has shed more than a third of its value since its all-time high set one year ago Thursday.

"Traders are expecting the world to move toward recession, with the U.S. and Europe especially a concern," said Rigby. "Based on the short-term trend, you could see prices approaching $80 next week."


Weighing on prices was evidence of falling demand in the U.S, where crude inventories jumped by 8.1 million barrels last week while gasoline stocks surged 7.2 million barrels, the Energy Information Administration said Wednesday in its weekly inventory report.

Both increases far exceeded expectations, reflecting both persistently weak demand and a recovery of Gulf Coast energy output following shutdowns prompted by Hurricane Ike last month.

"Overall demand for oil fell for a fifth straight week and year-on-year demand fell for a 24th straight week" this year, noted trader and analyst Stephen Schork in his Schork Report. "In fact last week demand ... fell to the lowest level since the week following the 9/11/2001 attacks."

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Demand for gasoline was also weaker, falling 5.3 percentage points over the four weeks ended Oct. 3 compared to the same period a year earlier, according to the EIA report.

Crude has fallen about 40 percent since surging to an all-time record $147.27 a barrel on July 11.

"The bubble has burst," Rigby said. "Before any real increase in prices, we need to see some good economic data from around the world, and that could be a few months."

In other Nymex trading, heating oil and gasoline futures were essentially flat at $2.49 a gallon and $2.04 a gallon. Natural gas for November delivery rose nearly 9 cents to $6.83 per 1,000 cubic feet.

In London, November Brent crude slipped 27 cents to $84.09 a barrel on the ICE Futures exchange.

[Associated Press; By GEORGE JAHN]

Associated Press writer Alex Kennedy contributed to this report from Singapore.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.



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