Oil: Price reaches six-month low

Oil rebounded above US$62 on Monday, after briefly sliding to a six-month low on abundant supplies in top consumer the United States and fears that slower US economic growth would stunt fuel demand.

US crude CLc1 settled up 90 cents at US$61.45 a barrel on short-covering, after sliding as low as US$59.52 and as high as US$62.15. London Brent LCOc1 rose 39 cents to US$60.80 a barrel.

"The rally started on buying by a European bank and the locals got caught short, which in turn set off stops," said Nauman Barakat, oil analyst at Macquarie Futures USA. "There's no news as such to set this buying off."

US crude had fallen nearly US$19 from its mid-July peak of US$78.40, its biggest slide in more than 15 years. The 24 per cent decline was set off as investors' concern faded over Iran and the Atlantic hurricane season proved unexpectedly mild.

The rout deepened last week as speculators fretted over slowing economic growth in the world's top consumer and hedge fund Amaranth Advisors registered billions of dollars in losses on natural gas positions.

"You have summer support unwinding, very bad product market support and, on top of that, the US economic slowdown is becoming more compelling," said Eoin O'Callaghan of BNP Paribas.

BP Plc's move to restore output at its Alaskan oil field earlier than expected added to a sense of healthy supply.

The British company said on Friday it would add 150,000 barrels per day of output to its Prudhoe Bay field in about a week, lifting total production to 400,000 bpd, less than two months after it was forced to halve flows due to a corroded pipeline. ID:nN22578882

Oil prices have been under pressure as US inventories of distillates climb to their highest level in nearly eight years and natural gas stocks swell to record-high levels, assuring consumers of ample winter fuel supplies.

At the same time, investors have begun to fret over the pace of US economic growth -- a worry heightened last week after a key business activity index turned negative for the first time since April 2003, indicating a decline in manufacturing.

DESIRABLE PRICE LEVEL

But Goldman Sachs cautioned that the market's weakness may be fleeting, as a severe winter could eat into comfortable stocks while delays in bringing online new oil fields and refineries may put renewed strain on global capacity by the end of this year.

Even those who say the market may struggle to rebound warn that further losses are likely to be checked soon by members of the Organisation of the Petroleum Exporting Countries, many of whom say US$50 to US$60 is a desirable price level.

While Opec was concerned by the sharp drop in prices, it had no plans to hold an emergency meeting.

"It's too early at the moment, but we are monitoring it," an Opec source said when asked if the cartel needed to meet ahead of a scheduled meeting in December.

Saudi Oil Minister Ali al-Naimi said last week that oil prices were "reasonable" -- a shift from calling prices "high" that some analysts read as a signal for potential output action.

"Opec has a very difficult decision to make because, if they try to maintain a price support to high, then they will exacerbate the downturn for the world next year that we are forecasting," said O'Callaghan.

- REUTERS