But crude for February delivery jumps past $42 a barrel
NEW YORK (MarketWatch) -- Crude investors dumped the expiring January contract Friday, sending prices to just under $34 a barrel, with the sell-off spurred by a jump in inventories and a rush to invest in the next month's contract.
Oil for February delivery, now the most active contract, rose 69 cents to end at $42.36 a barrel on the New York Mercantile Exchange. In supporting of prices, the president of the Organization of the Petroleum Exporting Countries said the cartel will continue cutting output.
The expiring January contract, meanwhile, got hammered after inventories rose to 19-month highs at the place where the Nymex stores oil, making it tougher to take delivery on barrels bought under January contracts.
"The last standing bulls are rolling over" to buy the February contract while "dumping their January oil on the market," said Phil Flynn, vice president at futures brokerage Alaron Trading.
Such a wide gap between near month contracts is unusual.
The front-month January contract, which expired Friday, ended down $2.35 at $33.87 a barrel on Nymex. Earlier, the contract tumbled to a low of $32.40 a barrel on Globex, the lowest level for a front-month contract since at least April 2004.
January crude posted a weekly loss of $12.41, or 27%, from last Friday's closing level of $46.28 a barrel. Oil prices have tumbled nearly 60% over the last three months. The February contract posted a weekly loss of 14%.
The January contract was under "liquidation pressure, reflecting the fact that we have huge inventories" at Cushing, Okla., said Bill O'Neill, managing partner at Logic Advisors.
Stocks at Cushing -- home of the Nymex crude contract's delivery point -- climbed 4.7 million barrels for the week ended Dec. 12 to 27.511 million barrels, the highest level since April 2007, the Energy Information Administration reported Wednesday.
The steep decline in oil prices this week has highlighted market concerns over a sharp slowdown in oil demand. These concerns overshadowed a decision by the OPEC oil cartel on Wednesday to reduce its current oil output by 2.2 million barrels a day. OPEC controls about 40% of the world's oil production.
Speaking in London Friday, OPEC President Chakib Khelil said that the cartel will continue to cut its output, according to a report by Agence France-Presse.
"We will continue this reduction until the price will stabilize," Khelil said, while blaming the dramatic changes in oil prices to speculators. "We feel very strongly that what happened in 2008 and what's happening now is due in great part to the speculation."
After hitting a record high above $147 a barrel in July, front-month crude contracts have tumbled 76%.
Also in London, Saudi Arabian Oil Minister Ali Naimi repeated previous assertions that $75 a barrel was a "fair and reasonable" price for oil, Reuters reported.
Naimi said the steep fall in oil prices is causing "havoc" with investment plans in oil-producing countries and jeopardizes future supplies, according to the report.
"OPEC is not alone in lamenting the state of affairs in its industry," said Edward Meir, an analyst at MF Global.
"Base metal prices are also getting hammered despite severe production cutbacks," Meir wrote in a research note. "The two sectors, in effect, share a common problem in that demand is falling at a much faster clip than the amount of supply taken off. How long this demand paralysis will last is the key question."
Rising inventories
The ongoing global economic crisis has cut into oil consumption and increased crude stockpiles.
Total petroleum products supplies in the United States, the world's biggest oil consumer, stood at 19.6 million barrels a day last week, down nearly 5% from a year ago. U.S. crude inventories rose to 321 million barrels last week, the highest in seven months.
While cheap oil bites into the fortunes of crude production and refining, the oil-storage business remains robust, as energy players sock away plentiful crude to wait out the current multiyear trough until prices come back.
Storage of oil also offers an instant return of $10 a barrel or more tied to the so-called "contango" structure of the futures market -- a condition where the expected price of oil in coming months trades higher than current prices. Read more on oil storage.
Putting downward pressures to crude trading, the U.S. dollar rose sharply against its major rivals, particularly the euro, as the Bush administration said it will give loans to struggling automakers in a move to save them from bankruptcy.
The dollar index , which measures the U.S. unit against a trade-weighted basket of six major currencies, surged 1.3% to 81.44, up from 79.670 in North American trading late Thursday.
A stronger greenback typically pushes dollar-denominated commodities, such as oil and gold, lower. See Currencies.
Also on the Nymex Friday, January reformulated gasoline gained 1 cent to end at 97 cents a gallon and January heating oil rose 2 cents to $1.39 a gallon.
January natural-gas futures fell 22 cents to end at $5.33 per million British thermal units.
