Oil prices held above US$55 yesterday after plunging nearly 9 per cent over the past two days, as traders fret over growing US fuel inventories and unusually mild temperatures in the world's top energy consumer.
The hefty losses in oil as well as in other commodities also may
have been triggered by funds switching into other assets.
US light crude traded up US11c at US$55.70 a barrel, after sliding by US$2.73 on both Wednesday and Thursday.
This marks the biggest two-day percentage drop since December 2004, and took the market to its lowest settlement since June 15, 2005.
London Brent crude rose US13c to US$55.24 after sliding US$2.85 on Thursday.
"Weather is certainly a key driver of sentiment, but what has been set in motion is a far more general demand pessimism for the year ahead," said Barclays Capital. "This has produced a market that is more sensitive than usual to any producer hedging, and which is inclined to attempt to break sharply lower."
Unseasonably mild weather in the US northeast, the top heating oil consumer region, and in Europe has undercut demand for fuel, pulling down prices since late December.
US Government data on Thursday showed a 2 million barrel rise last week in distillate stocks, including heating oil.
Petrol stocks also rose by a hefty 5.6 million barrels, much more than the 1.5 million barrels forecast by analysts, overshadowing a 1.3 million barrel fall in crude stocks.
The sharp price slide also raised market speculation that a hedge fund might be taking large losses on an oil position, similar to the huge natural gas bet that sank the multibillion-dollar Amaranth fund last year.
However, weather forecasters said that a stretch of unusual warmth in the eastern US could end by mid-January.
- REUTERS
