Oil bounces off 17-month low to $64 in Asia

[October 29, 2008]  SINGAPORE (AP) -- Oil prices bounced off a 17-month low Wednesday in Asia as a rally in global stock markets boosted investor confidence that the worst of a global economic slowdown and its impact on crude demand has been priced in.

Oil investors have been closely tracking equity indexes for signs of market sentiment about how deep and widespread the global downturn will be. They took heart from a rally in stocks that began Tuesday in Asia, followed through to Europe and the U.S. and continued Wednesday in Asia.

"Everybody is looking to Wall Street for guidance," said Gavin Wendt, head of mining and resources research at consultancy Fat Prophets in Sydney. "The positive momentum in stock markets has had an impact on commodities."

Light, sweet crude for December delivery was up $1.95 to $64.68 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. The contract overnight fell 49 cents to settle at $62.73, the lowest closing price since May 15, 2007.

Oil prices have fallen by about 57 percent since peaking at nearly $150 a barrel in mid-July.

Japan's benchmark Nikkei index jumped 7.7 percent on Wednesday while Australia's key stock index rose 1.3. The Dow Jones industrial average soared nearly 900 points, or nearly 11 percent, its second-largest point gain ever.

The U.S. Federal Reserve is expected to cut its target fed funds rate by half a point to 1 percent on Wednesday and investors are speculating the Bank of Japan may trim interest rates when it meets Friday.

Investors are also watching for signs of slowing U.S. demand in the weekly oil inventories report to be released Wednesday from the U.S. Energy Department's Energy Information Administration. The petroleum supply report has shown larger than expected increases in oil, gasoline and distillate stocks during the last few weeks, suggesting U.S. motorists reduced driving after oil surged to a record in July.

OPEC members warned Tuesday that lower oil prices threaten to make unprofitable key oil infrastructure investment, which could undermine future production.

At an annual oil and money conference in London, United Arab Emirates Energy Minister Mohammed Bin Dhaen al-Hamli said the current crude prices were "very dangerous for the world's economy."

"OPEC would like to protect the $80 price level," Wendt said. "Many OPEC members haven't made the proper investments in their aging infrastructure."

In other Nymex trading, gasoline futures rose 3.7 cents to $1.49 a gallon, while heating oil gained 3.8 cent to $1.95 a gallon. Natural gas for November delivery increased 12.4 cents to $6.31 per 1,000 cubic feet.

In London, December Brent crude rose $1.96 to $62.25 a barrel on the ICE Futures exchange.

[Associated Press; By ALEX KENNEDY]

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