By Virginia Harrison, MarketWatch
SYDNEY (MarketWatch) — Crude-oil futures extended gains in electronic trading Thursday, supported by a weaker dollar, as investors regained a degree of risk appetite.
Crude for September delivery CL1U +1.71% rose 48 cents, or 0.7%, to $83.40 a barrel on the New York Mercantile Exchange during Asian trading hours, adding to the 4.5% rise delivered in the North American session.
Despite the recent gain, oil prices have sunk nearly 14% over the past month, according to data from FactSet Research, as concerns about the health of the global economy dull the outlook for energy demand.
“If you start to get a glimmer of hope of recovery, that should increase the demand,” said Jonathan Barratt, managing director at Commodity Broking Services in Sydney.
He said depressed crude prices were “the first step in the road to real recovery.”
“Not a recovery that’s based on stimulus from the U.S., but a recovery that’s based on real asset prices, and real prices that have been able to clear the market profitably,” he said. “If I was a company and I was pricing oil at $100 a barrel, and now I’m pricing oil at $82, that 20% correction is a 20% cost saving.”
Asian equity markets tracked Wall Street lower Wednesday, which slumped 4.6% on worries that European debt worries were spreading to France. Read more on Asian markets.
But while worries about a frail global economy have dampened demand, strategists at Barclays Capital said energy market fundaments remain well supported.
“Although the sovereign crisis and associated risk-off trade have hit energy markets, we do not see sharply weaker energy fundamentals — whether in commodities, credit or equities,” the strategists wrote in a research report. Read more about Asian appetite for oil.
“The industry is well capitalized, and the biggest energy market — oil — is facing much greater challenges of supply than demand,” they said.
Despite the recent falls, Barclays Capital do not expect a retracement of the 2008-2009 down-cycle in oil markets, and said $100 a barrel is the new price floor.
Robert Nunan, who handles risk management in the petroleum division at Mitsubishi Corp. in Tokyo, agrees the oil market is unlikely to repeat the experience of the financial crisis.
“I don’t think we are going to get a repeat of the Lehman crash. It’s probably a mini-version of the run-up in 2008, and the crash in 2009,” he said.
The dollar index DXY -0.49% , a measure of the greenback’s performance against six other major global currencies, dipped to 74.472 in Asian trading hours Thursday, from 74.731 in late North American trade Wednesday.
A weaker greenback makes dollar-priced commodities such as oil cheaper to holders of other currencies.
Virginia Harrison is a MarketWatch reporter based in Sydney.
