Business | Oil & Gas
Oil rebounds on bullish outlook
Crude oil rebounded on Tuesday on expectations that a Federal Reserve interest rate cut will hit the US dollar and spur investor demand for oil.
- Reuters
- Published: 00:10 March 19, 2008
London: Crude oil rebounded on Tuesday on expectations that a Federal Reserve interest rate cut will hit the US dollar and spur investor demand for oil.
US crude rose by $1.45 to $107.13 a barrel by 1445 GMT, while London Brent blend was $2.29 higher at $104.04. On Monday, the US oil contract hit a record high of $111.80 before a more than four per cent slide, the biggest one-day percentage drop in more than seven months.
"The Fed meeting will be the focus of participants in many asset classes," said Mike Wittner, oil analyst at Societe Generale. "If the Fed move results in further dollar weakness, it should be very short-term bullish for oil."
World financial bourses plunged on Monday after JPMorgan Chase & Co stepped in to rescue investment bank Bear Stearns for a bargain buy of $2 a share.
Decent results
But yesterday, better-than-expected quarterly results from Goldman Sachs Group and Lehman Brothers Holdings helped soothe investors' worries.
Markets also recovered as they anticipated the Federal Reserve would announce a cut in short-term rates, which stand at three per cent, by up to one percentage point to try to ward off further economic damage.
Concerns of a looming US recession have hit the dollar, supporting oil and other dollar-denominated commodities, although analysts are concerned about the risk of a slowdown in underlying demand.
Further pressure could result from a sharp fall in refined product prices, which has made it less profitable for refiners to turn crude into fuel.
US gasoline slid by more than six per cent on Monday, sending the profit margin, or crack, into negative territory.
"Given the current run for cash and the over-valuation of some commodities we will watch for continued profit taking," said Olivier Jakob, oil analyst at Petromatrix.
"A negative gasoline crack can only point to a continued overvaluation of crude oil."
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