Oil Shrugs off 20-Month Low and Rallies to Finish Above $52
Oil rebounded from a 20-month low as cooler weather in the United States rekindled heating demand, keeping prices above $50 and stemming a slide that had cut 18% off prices this month.
U.S. crude futures settled up $1.03 at $52.24 a barrel after slipping as low as $50.28, the lowest level since May 25, 2005. London Brent rose more than 2%.
"I think there is psychological resistance at $50," said Jason Schenker, economist for Wachovia Bank in Charlotte, North Carolina. "I think the prospect of colder weather may also provide some fundamental footing for heating oil in the near term," he said.
Prices had hit fresh 20-month lows for two consecutive sessions after Saudi Arabia said OPEC output cuts were working well and an emergency meeting of the producer group was unnecessary.
"There is no need to worry because the market is in a very healthy condition," the kingdom's oil minister Ali al-Naimi told reporters on Wednesday.
The market has plunged more than 35% from a record peak of $78.40 a barrel in July 2006 in the wake of escalating Middle East tensions.
Many technical analysts said it was not a question of if, but when the market would test the $50 support level.
"Most of our charts suggest the prices will continue heading south, perhaps punctuated by the odd bounce," said Man Financial in a research note.
"In crude's case, the $50 level should not impede any selling either, as it does not constitute major chart support, but rather, is more of a psychological price point at this stage."
As colder weather reached the U.S. Northeast region, heating demand was forecast to rise above average early in the week, with Wednesday demand well above usual, private forecaster DTN Meteorlogix said.
But the coming of the cold was a little too late to change radically the recent fundamentals, analysts said.
The International Monetary Fund has revised down its 2007 estimate for global oil prices to $52.00 a barrel from a September forecast of $75.50, the fund's managing director, Rodrigo Rato, told Reuters on Tuesday.
Analysts polled by Reuters expect U.S. weekly oil statistics to show a build of 100,000 barrels in crude stocks last week, the first rise in eight weeks, with imports rebounding from a steep drop the previous week.
Distillate stocks were projected to have risen 1.9 million barrels, with gasoline seen rising 2.2 million barrels.
The data will be released on Thursday, a day later than usual due to the Martin Luther King holiday on Monday.