Business | Oil & Gas
Crude oil down slightly near $52 after G20 rally
Price rises may be sign investors are returning to riskier investments.
- Reuters
- Published: 23:01 April 3, 2009
London: Oil slipped only slightly to near $52 (Dh190.84) a barrel on Friday, after surging by nearly 9 per cent the day before, as global markets viewed the outcome of the G20 summit as paving the way for some risk appetite to return.
Oil made its largest one-day percentage gain in three weeks on Thursday as markets rallied after world leaders at the summit announced a trillion-dollar deal to act on the economic crisis.
US light crude for May delivery fell 42 cents to $52.22 a barrel by 1218 GMT, down from Thursday's $4.25 gain that lifted the contract to $52.64.
London Brent crude fell 28 cents to $52.47.
Some market watchers said recent price rises in the crude market, in spite of low demand and heavy supply, were likely to be a sign investors were turning to investments seen as involving more risk, which can include oil.
"The last two weeks has been fairly encouraging," said David Dugdale, a London-based energy analyst at MFC Global Investment Management.
"(US Treasury Secretary Timothy) Geithner's procedures for quantitative easing and yesterday's G20 seem to have provided enough for the bulls to now move into risk assets."
The market yesterday will keep a keen watch on economic data, including US March unemployment, non-farm and manufacturing payrolls, due to be released at 1500 GMT, to gauge the health of the world's largest economy.
Analysts at J.P. Morgan wrote in a note to investors that recent Opec production cuts seem to have tightened supply, and said a build in US crude oil in the last three weeks was an "inventory head fake" - a false signal of direction.
"If there was truly a significant global surplus, you would not only expect crude oil stocks to be building onshore, but you would also expect the contango on global benchmarks to be widening." Contango is a market term meaning prices for future delivery are above current levels. When there is a wide contango it pays for some investors to store oil on ships to sell at a later date.
In the past month the spread for Brent futures has narrowed from $1.44 on March 3 to around $1.23 yesterday, according to Reuters data.
"The tightening of spreads had meant that the floating storage play is no longer as profitable as it once was," J.P. Morgan analysts wrote.
In January, oil majors, traders and Opec producers were thought to be storing 60-70 million barrels of oil at sea, mostly in the US Gulf, with Norway's Frontline estimating the armada of tankers holding up to 80 million barrels.
US factory orders rose in February for the first time in seven months, and a rebound in China's official purchasing managers' index (PMI) in March showed the Chinese economy may have bottomed, China's chief statistics official said yesterday.
European shares were lower at midday yesterday in a choppy session, on track to snap a three-day rising streak as investors awaited the US job data.
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