Oil Above $87 on Wall Street Recovery
Oil rose back above $87 a barrel in choppy trading on Thursday as a Wall Street-led recovery in global stock markets overshadowed concerns about weakening demand in the world's top oil consumer, the United States.
U.S. light, sweet crude for March delivery was higher, rallying from lows of $86.24 as on the back of a slight recovery in the U.S. stock market.
London Brent crude followed the move.
Oil has also been supported by production shutdowns in the North Sea and in Nigeria, but stock market movements, particularly the U.S. market, set its trading direction on Thursday.
Oil prices fell for the second straight day on Wednesday after a government report showed a surprisingly big build in U.S. petroleum stockpiles, pointing to weaker demand ahead.
Analysts said the data was the latest in a steady stream of bad news on the U.S. economy despite aggressive interest rate cuts by the Federal Reserve to ward off a recession.
"Instead, it seems that problems are getting worse...We would not be surprised to see a much sharper break in crude oil prices over the next few weeks," said Edward Meir at MF Global.
Oil prices have tumbled from their January record above $100 on mounting concerns of the U.S. recession, and traders said the market appeared to disregard bullish news.
Royal Dutch Shell said on Thursday it was halting 130,000 barrels per day of Nigerian output because of pipeline leaks. This came a day after Total announced it had shut around 280,000 barrels of oil equivalent in output from its North sea oilfields.
"At the end of last year, if you had news like this, it (oil) would be hitting new highs. Now every time there is a rally, it seems to get sold into. I think funds are continuing to liquidate their positions," said Christopher Bellew at Bache Commodities.
In addition to the souring economic outlook, fuel demand has been curbed this winter by milder than usual weather in the U.S. Northeast, normally a big consumer of heating oil.
The National Weather Service eight to 14-day outlook released on Wednesday predicted normal or below normal temperatures for the northern half of the United States, with above seasonal readings expected for the rest of the country.
A Reuters poll showed world oil demand growth losing momentum in 2008 as high prices and a slowdown in the world's industrialised nations led by the United States hit consumption.
The poll of 20 analysts forecast average world oil demand growth this year at 1.43 million bpd, down from 1.56 million bpd in a similar poll last August and well short of International Energy Agency's forecast of 1.98 million bpd.