CRUDE PRICES SURGE HIGHER
Crude oil futures surged more than 10% Thursday to flirt with $50 a barrel as the dollar’s value slipped against the euro and OPEC officials threatened production cuts.
Their words were buttressed by indications that Russia might work with the Organization of the Petroleum Exporting Countries to rein in supplies and boost prices.
January crude climbed as high as $49.12 before closing at $47.98 a barrel, up $4.46, despite an assessment by the Paris-based International Energy Agency that this year’s world crude consumption will fall for the first time in 25 years.
The rally came on a day in which it took 1.332 U.S. dollars to buy a single euro, up from $1.301 on Wednesday.
Oil prices also were reacting to some unusual transparency from Saudi Arabia, which announced that it had pumped nearly 8.5 million barrels of oil a day in November, very close to its own announced curbs. That was considerably less than what the International Energy Agency had estimated.
Adding to the supply worries were remarks by Russian President Dmitry Medvedev on state television Thursday that “we will do what we think necessary” -- including joining OPEC or working closely with the cartel to lower output -- to push energy prices higher.
Russia, the world’s largest non-OPEC oil producer, will send a representative to the group’s meeting Wednesday in Algeria, where cutting production will be the main topic. OPEC President Chakib Khelil said Thursday that Saudi Arabia, OPEC’s biggest member, was among those supporting reducing output.
Nonetheless, some analysts said they expected crude to resume the slide that began in July after it reached an all-time high of more that $147 a barrel.
“I don’t think it has bottomed out yet,” said John Kingston, global director of oil for Platts, an energy information company. “You have to remember that, globally, the fourth quarter is the heaviest-demand quarter of the year, and that demand has been down by a lot. And it will be lower in the first quarter and lower still in the second quarter.”
Even if OPEC and Russia pump less, Kingston said, the effect might be muted because crude oil buyers have been purchasing larger quantities than usual to lock in the low prices. “The oil tanks around the world have been topped off and are all but full,” Kingston said.
Energy economist Philip K. Verleger Jr. marveled at how recently everyone was complaining about $100-a-barrel oil.
“The global economy is so ghastly that there have to be further declines. We could see oil prices between $10 and $20 a barrel. It’s going to be ugly,” said Verleger, a professor at the University of Calgary’s Haskayne School of Business.
The report released Thursday by the International Energy Agency, an energy advisor for industrialized nations, seemed to try to put the best face on the situation.
“While it is tempting to roll over and accept a supposedly ‘inevitable’ view that the market will collapse further . . . we resist the temptation to jettison growth for 2009,” the agency report said, predicting modest economic growth and energy demand in the second half of 2009. “It is premature to automatically assume a protracted down cycle.”
Still, the report went on to detail the global slowdown as seen through declines in demand for oil around the world.
Oil demand in North America declined 8.3% in October compared with the same month in 2007, the report said, falling for the 10th month in a row. Most of the slowdown came from the U.S., where the drop was 9.4%.
“Adjusted preliminary data in the continental United States continue to depict an extremely gloomy picture of oil demand,” the agency said.
Although demand in China increased in October, the IEA found signs that “the Chinese economy is indeed slowing down, according to diverse indicators on manufacturing, power generation, retail sales and trade. . . . For example, growth in passenger car sales has virtually stalled since last summer, after rising at double-digit rates for several years in a row,” the report said.
The IEA’s findings were among the reasons some experts think the oil market’s rebound would be short-lived.
Tom Kloza, chief oil analyst for the Oil Price Information Service in New Jersey, predicted lower demand and falling energy prices in January “when the holiday bills come due.”
On Thursday, the nationwide assessment of retail gasoline prices from 10,000 filling stations around the country, compiled by OPIS and Wright Express for AAA, showed the national average at $1.664 for a gallon of self-serve regular gas, down almost 2 cents since Wednesday and $2.45 off the record high of $4.114 on July 17. California’s average gasoline price fell more than a penny to $1.77 a gallon, or $2.84 less than the record $4.61 set on June 19.
Phil Flynn, vice president and senior market analyst for Alaron Trading Corp. in Chicago, called the jump in oil prices “a bullish day in a bearish month.”
“We might test $50 a barrel and maybe get to $55 a barrel, but it won’t last,” Flynn said. “OPEC and Russia will do all they can to keep oil above $40, but I still think that $35-a-barrel oil is the longer-term target.”
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