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SINGAPORE - Oil bounced back above US$89 a barrel yesterday as traders bet last week's nearly US$10 ($13) sell-off was overdone, and might turn the tide against an expected increase in Opec output when the cartel meets later this week.
US light, sweet crude for January delivery rose
as high as US$89.84 a barrel in Globex electronic trading. By 0412 GMT the contract was up US82c at US$89.53.
Prices slumped by US$9.47 a barrel last week, the biggest nominal weekly loss ever, amid growing expectations of an increase in Opec production, signs of waning health in the US economy and a mild draw in US crude stocks.
But the decline from a record-high closing price of $98.18 on November 23 will also go some way to calming concerns within the Opec over the effect of nearly $100 oil on the world economy and crude oil demand.
Ministers meeting in Abu Dhabi this week will weigh a modest boost in oil supplies, but the influential Saudi Oil Minister Ali al-Naimi has avoided any comment on likely steps, repeating only that the market is well supplied although prices are a concern.
Other ministers from Nigeria and Kuwait have said Opec could agree to an output increase if required, while staunch price hawk Venezuela said it saw no need to do so.
"What Opec will decide on production ceilings is an unknown at present. Our own view is that Opec may announce an increase in production ceilings on a temporary or 'to be reviewed' basis," said Commonwealth Bank of Australia analyst David Moore.
The world's top exporter convinced others in Opec to agree a 500,000 bpd increase in September, but for the most part that rise failed to check oil's rally.
Oil's surge from below US$70 in mid-August was fuelled by the weakening dollar and fears over winter fuel supplies, but last week ran aground as traders focused on signs of economic weakness in the United States, the world's top energy consumer.
Federal Reserve Chairman Ben Bernanke warned last week that a resurgence in financial strains in recent weeks had dimmed the outlook for the US economy.
Analysts also pointed to rising Gulf Opec flows as the previous output rise took effect from November 1.
"This weakening has occurred as the [market] shifts toward a cyclical softening in oil fundamentals," Goldman Sachs said.
- Reuters
