BLBG: Oil Rises First Time in Four Days on Concern Drop Was Excessive
Crude oil rose for the first time in four days on speculation prices had fallen too far, too fast in response to the global recession.
Oil is paring a 15 percent drop from Jan. 5 as traders who bet prices would fall are buying back contracts to lock in their profits on so-called short sales. Prices declined this week as reports showed U.S. unemployment rose amid the global economic contraction. Crude’s slump was limited on concerns that fighting between Israel and Hamas in the Gaza Strip may disrupt supplies.
“We’re retracing that lower settlement that we had from yesterday,” said Jonathan Kornafel, a director for Asia at options trader Hudson Capital Energy. “There is a good $5 to $10 still in the market right now for geopolitical premiums.”
Crude oil for February delivery gained as much as 94 cents, or 2.3 percent, to $42.64 a barrel on the New York Mercantile Exchange, and was trading at $42.49 a barrel at 12:31 p.m. Singapore time.
Yesterday, futures fell 93 cents, or 2.2 percent, to settle at $41.70 a barrel in New York, the lowest since Dec. 30. Oil has fallen 56 percent from a year ago. Crude has dropped 8.4 percent this week.
Prices fell after a report showed that the number of people getting unemployment benefits surged to a 26-year high. The Labor Department tomorrow may say that the jobless rate climbed to 7 percent, a survey showed. U.S. oil stockpiles rose last week, the government said yesterday.
Oil futures had climbed as much as 2.4 percent to $43.63 earlier today as rocket attacks on Israel launched from Lebanon spurred concern that the widening conflict in Gaza will disrupt Middle East supplies. Venezuela and Angola signaled compliance with the Organization of Petroleum Exporting Countries’ production cuts agreed to last month.
Expecting a Move
“Traders are really expecting this market to move,” said Hudson Capital Energy’s Kornafel. “Everyone is eyeing the $40 level. Can we push through, and if so, will we back in the low $30’s again? Or are we going to push back up again? Traders are not expecting it to remain at this $42 to $43 level.”
Brent crude oil for February settlement rose as much as 88 cents, or 2 percent, to $45.55 a barrel on London’s ICE Futures Europe exchange at 11:46 a.m. Singapore time. The contract yesterday fell 2.6 percent to settle at $44.67 a barrel.
U.S. crude-oil inventories rose 6.68 million barrels to 325.4 million barrels last week, the Energy Department said yesterday in a weekly report. Supplies at Cushing, Oklahoma, where oil that’s traded on Nymex is stored, climbed 14 percent to 32.2 million barrels, the highest since at least April 2004, when the department began keeping track of supplies there.
West Texas Discount
The gain in stockpiles has caused the price of oil in New York to trade at a discount to Brent crude. West Texas Intermediate, the grade that is the physical basis for the New York contract, normally trades at premium to the European type.
The price of Brent oil is $3.02 a barrel higher than crude traded in New York. The difference provides an incentive to traders to divert oil from Africa, the Middle East and other sources to European ports.
The price of oil for delivery in February 2010 is 44 percent more than for the current month, increasing the opportunity for traders to profit from storing crude for later use. This structure, in which the subsequent month’s price is higher than the one before it, is known as contango.
Trader may seek direction for prices from a U.S. Labor Department report on the unemployment rate.
The government may report tomorrow the economy lost another 510,000 jobs in December, bringing the 2008 total to a six-decade high of 2.4 million, according to economists surveyed by Bloomberg. The unemployment rate probably jumped to 7 percent, the highest level since 1993. A report from ADP employer services said 693,000 jobs were lost in December.
“That could hold some sway and I wouldn’t be surprised if they are just as bad as ADP numbers,” said Hudson’s Kornafel. “That’s going to have an effect on demand. The sentiment has really shifted to $40 level, whereas a week ago people were looking at $50.
