SINGAPORE // Oil regained some ground above US$36 (Dh132) today, after falling more than 20 per cent this week as Opec's record supply cut failed to build a floor under prices and instead was viewed as a sign of a worsening demand slump. Oil, which fell to its lowest since June 2004 on Thursday, is now more than $110 off its July peak, having shed a third of its value just this month as a global recession cuts into fuel use. It was set for its second biggest weekly decline since 2003.
US light crude for January delivery, which expires later today, rose 58 cents to $36.80 a barrel at 0606 GMT, after falling on Thursday to $35.98. Months further out along the curve have dropped less than the front-month contract, with crude for February delivery 77 cents higher at $42.44. London Brent crude for February delivery was 44 cents higher at $43.80 a barrel.
"Until traders see a sustained drop-off in the rate of demand destruction, the market will have a hard time establishing a floor. We expect the market to level off in the high twenties before beginning a push back towards $50, sometime in the late second, early third quarter," said Jonathan Kornafel, the Asia Director of Hudson Capital Energy. "From a credibility standpoint, Opec has no choice but to bite the bullet for the next few months."
Asian refiners had still received no notices from Opec producers of any potential allocation cuts for January, but said they still expected to receive them even though time was running out to influence vessel nominations for the month. Analysts doubted the producer cartel, whose third production cut since September brought its total reduction to more 4 million bpd or 5 per cent of world supply, would fully implement the agreed cuts, further weighing on prices.
"We believe that full implementation of the cuts is unlikely," said Goldman Sachs analysts in a note to clients. The economic outlook for next year is increasingly bleak. Top forecasters are now predicting the first decline in world energy use since 1983, and economic indicators show a deep global recession taking hold. Deutsche Bank forecast oil demand will drop 1.2 per cent in 2009, more bearish than predictions from the US Energy Information Administration.
JP Morgan cut its 2009 crude oil price forecast to $43 a barrel from $69 previously, while Goldman Sachs reiterated it expected oil to average $30 a barrel in the first three months of 2009. The world's second biggest energy consumer China on Thursday announced it would cut domestic fuel prices today for the first time in almost two years to revamp its regulated pricing regime and revive growth. The cuts of roughly 14 per cent for gasoline and 18 per cent for diesel could stimulate demand, analysts said. *Reuters