BLBG: Oil Is Little Changed After Rising on Rebound in U.S. Equities
Crude oil was little changed after gaining for the first time in three days as the U.S. stock market advanced, raising expectations that fuel use in the world’s biggest energy-consuming country may recover.
Oil climbed 4 percent yesterday as equities rebounded after the Standard & Poor’s 500 Index sank 3.5 percent Feb. 23. Crude has dropped 73 percent from a record $147.27 on July 11 because of a global recession that’s cut fuel demand. Crude imports in Japan, the world’s third-largest user, fell 8 percent in January from a year earlier, the finance ministry said today.
“People do look at the Dow and the S&P for signs that the economy is recovering and if the economy picks up then oil demand will pick up,” said Clarence Chu, a trader at options dealer Hudson Capital Energy in Singapore. “But this is likely a short- term rally and I don’t think it changes the reality that the economy is in terrible shape now.”
Crude oil for April delivery was at $39.65 a barrel, down 31 cents, at 12:22 p.m. Singapore time on the New York Mercantile Exchange. Yesterday, futures rose $1.52 to settle at $39.96 a barrel. Prices have fallen 60 percent in the past year.
The Dow Jones Industrial Average yesterday increased 236.16 points, or 3.3 percent, to 7,350.94. The Standard & Poor’s 500 Index rose 29.81 points, or 4 percent, to 773.14.
Japan shipped in 18.69 million kiloliters, or about 3.79 million barrels a day, of oil in January, a finance ministry report said. The third monthly drop in imports came as sluggish industrial output and weaker consumer spending reduce demand.
Nippon Oil Corp., the country’s largest oil refiner, will slash crude oil processing by 22 percent in March from a year earlier as a milder-than-average winter reduces heating-oil demand, a company spokesman said by telephone.
U.S. Inventories
A U.S. government report today may show that supplies gained last week, a Bloomberg News survey showed.
Inventories probably increased 1.25 million barrels last week, according to the median of 14 analyst responses in a Bloomberg News survey. Supplies fell 138,000 barrels in the week ended Feb. 13, the first decline so far this year. The Energy Department will release its weekly report today at 10:30 a.m. in Washington.
The industry-funded American Petroleum Institute said supplies rose 341,000 barrels to 346.2 million barrels a day last week, in a report that was released after the markets closed yesterday in Washington.
The price of oil for delivery in May is more than $2 a barrel higher than for April. December futures are more than $9 above the front-month contract. This structure, in which the future month’s price is higher than the one before it, is known as contango and allows buyers to profit from hoarding oil.
Cushing Supplies
Crude oil supplies at Cushing, Oklahoma, where New York- traded West Texas Intermediate crude is delivered, declined 52,000 barrels to 34.9 million barrels in the week ended Feb. 13, according to the Energy Department. Inventories in the week ended Feb. 6 were the highest since at least April 2004, when the department began keeping records for the location.
The high inventories at Cushing have depressed the West Texas price so that Brent crude oil traded in London is at a premium to the U.S. grade.
Brent crude oil for April settlement fell as much as 55 cents, or 1.3 percent, to $41.95 a barrel on London’s ICE Futures Europe exchange. It was at $42 a barrel at 12:25 p.m. Singapore time. The contract increased $1.51, or 3.7 percent, to $42.50 a barrel yesterday.
Oil May Rise
Oil prices will probably start rising in the second half of the year, as a drop in demand starts leveling off and OPEC cuts supply, according to a Barclays Capital report yesterday.
The oil market’s “current phase will determine whether OPEC has merely succeeded in staunching the fall or whether prices will start to trend upwards, particularly in the second half of the year,” Barclays analysts including London-based Paul Horsnell said in a report.
The 11 OPEC members with quotas, all except Iraq, reduced output 3.8 percent to 25.3 million barrels a day in February, according to consultant PetroLogistics Ltd. of Geneva. That’s down from 26.3 million barrels in January, according to Conrad Gerber, founder of PetroLogistics. Members have a quota of 24.845 million barrels a day.
“On the supply side, it will take some time for the market really to see the effect of the OPEC cut,” said Hudson Capital’s Chu. “Right now they are affecting the delivery to Asia but it will take a bit longer to affect the supply for Europe and U.S.”
